Significantly lower coffee crop in Brazil supports coffee prices

Lower estimates of the Brazilian forecasting agency Conab with respect to the almost complete Brazilian 2015/16 coffee harvest drove coffee prices up yesterday. What is more, the Council of Brazilian Coffee Exporters (Cecafe) corrected its export forecast slightly downwards. 

Arabica coffee gained by 1.4% in price, while Robusta climbed by 1.8%. Conab had already been anticipating that Brazilian production would decline as compared with 2014/15. Now, however, it is expected to decrease by 3% to 31.30 million bags in the case of Arabica and by as much as 16.7% to 10.85 million bags in the case of Robusta, i.e. more sharply than previously envisaged. 

With a total volume of 42.15 million bags, the crop now looks set to fall well short of the lower end of the spectrum that Conab had originally indicated in its first estimate. 

"In recent months, the forecasts of various observers have been fluctuating within a broad range of 40 to 53 million bags. The main reason for the meagre crop are the excessively dry weather conditions that have prevailed for much of the season. As a result, this year's crop is therefore likely to be even lower than the 2014/15 crop, which at 45.3 million bags had already proved disappointing because of overly dry weather. At a good 49 million and nearly 51 million bags respectively, the two years prior to that had seen the biggest crops ever harvested. The fact that recent rainfall has improved the prospects for the 2016/17 crop (see yesterday's Commodities Daily) is likely to put the brakes on the upswing in prices", says Commerzbank.