Rains boost Brazil's robusta coffee prospects - but arabica hopes muted
16:08 UK, 18th May 2017, by Mike Verdin

Prospects for Brazil's robusta coffee output have, thanks to much-needed rains, seen a dramatic improvement unlike those for arabica production, which are being depressed by the hangover from last year's bumper harvest.

Conab, the Brazilian crop bureau, in its second estimate for domestic coffee output this year pegged it at 45.56m bags little changed from an initial estimate in January which, at the middle of the forecast range, came in at 45.58m bags.

However, the apparently flat figure disguised a marked upgrade in expectations for the country's conilon, or robusta, harvest, now seen coming in at 10.14m bags a jump of 27% year on year, and ahead of the range of 8.64m-9.63m bags previously guided to.

By contrast, arabica production in Brazil, the world's top coffee producing country, was pegged at 35.43m bags, a drop of 18.3% year on year, and close to the bottom of the range of 35.01m-37.88m bags that Conab guided to four months ago.

'Climatic conditions improved'

The bureau said that the improved expectations for conilon output reflected largely greater optimism for a recovery in output in Espirito Santo, the biggest robusta-growing state, from two years of drought.

The Espirito Santo harvest was forecast at 5.89m bags, well above the previous estimate of a harvest of 4.61m-5.30m bags.

"Unlike in recent years, in which conilon coffee crops were affected by adverse weather conditions, this season rains came between December and February, creating major changes in conilon crops as they went through their growth phase," Conab said.

"From the end of 2016, climatic conditions improved," with the impact on yields enhanced by a improved husbandry by producers, in the face of relatively high prices.

'Intensification in pruning'

By contrast, for arabica beans, in Minas Gerais, the key growing state for the variety, production was seen dropping by 16.6% to 15.37m bags, with output falling particularly fast in the key south and centre west region of the state.

Here production will drop 20% to 16.63m bags, thanks to an "intensification in pruning of crops that suffered most from the high yields of the last harvest, or from frost damage", Conab said.

Many crops had been so-called "skeletonised", and cut back so strongly that they are taken out of production for a year, but in a process which helps them then bounce back strongly the following season.

Conab added that coffee trees in the region had "apparently fared well" in the main growing season, after a strong second blossoming period but this after a first flowering spell which was hurt by drought, while more recently there are reports of insect pests and rust fungus in some areas.

Conab vs other commentators

Brazil's overall estimate of a 45.56m-bag is lower than estimates from some other commentators, such as Rabobank, which has pegged output at 49.2m bags, proving more generous on both robusta and arabica estimates.

Safras last week foreacast production at 51.1m bags, proving particularly upbeat over arabica production, which it pegged at 39.6m bags.

Conab has a reputation for conservative production estimates.

Coffee prices tumble

In New York, arabica coffee futures underperformed, tumbling 2.1% to 131.65 cents a pound for July delivery in late morning deals, compared with a 0.6% slide top $1,985 a tonne in London robusta futures the opposite dynamic than might be expected given Conab's revisions.

However, the market moves reflected a 7% slump in the real to five-month lows against the dollar, after one of the country's leading newspapers alleged that Michel Temer, Brazil's president, had been taped endorsing bribe payments.

According to O Globo, Joesley and Wesley Batista - chairman and chief executive respectively of Brazil-based JBS, the world's biggest meatpacker - presented a secret recording of Mr Temer approving bribes to Eduardo Cunha, the disgraced former speaker of the lower house, as part of plea bargain negotiations.

A weaker real cuts the value, in dollar terms, of assets such as coffee in which Brazil is a major player.

However, with Brazil by far the biggest exporter of arabica beans, but behind Vietnam in robustas, it is the arabica market which is more sensitive to movements in the real.