US, relatively, upbeat over Brazil coffee harvest By Agrimoney.com - Published 13/05/2014 Brazil's coffee harvest will decline, but not by much as a record crop of robusta beans offsets some of the damage to arabica production from drought, US officials said. The US Department of Agriculture's Brasilia bureau, in its first forecast for this year's Brazilian coffee harvest, pegged it at 49.5m bags, a decline of 4.2m bags. While supporting the first drop since 1994 in output in a so-called "on" year in Brazilian coffee production, which alternates between higher and lower harvest years, the forecast is higher than that from many other commentators. For instance, coffee merchant Volcafe has forecast a 45.5m-bag harvest, while Citigroup expects a 44.25m-bag crop. 'Good production potential' However, the USDA bureau highlighted that Brazilian areas growing robusta beans - the type traded in London, and generally seen as being of lower quality – had not suffered the same degree of damage from drought as the arabica-growing heartland of Minas Gerais state. The robusta crop was pegged at a record 16.4m bags, up 2.1m bags year on year, "primarily due to the good production potential in Espirito Santo, Rondonia and Bahia", the bureau said. Early reports from the robusta harvest have been largely encouraging, although many commentators question how representative these results will prove. 'Prolonged drought… tree eradication' And the USDA office gave a relatively upbeat forecast, of 33.1m bags, for arabica coffee production, down 6.3m bags year on year on the bureau's own figures, but well above, for instance, the Citigroup estimate of 27.55m bags. "The prolonged drought and high temperatures during January and February, especially in the states of Minas Gerais and Sao Paulo, significantly affected the filling and development of the beans," the bureau said in a report. Furthermore, "contacts report significant tree eradication in the state of Parana as a consequence of last year's frost and low prices in 2013, thus reducing the production potential for that state". Conab vs USDA However, the report added that the extent of the hit from drought, and tree loss, was "unclear" for now and "will be available only after the harvest, when it will be possible to learn about the quality and weight of the bean". The bureau also has longstanding reservations over estimates from Conab, saying that the Brazilian crop bureau's data, while taken by industry as a benchmark, may structurally underestimate output, and if plugged into balance sheets can imply negative stocks. Conab, for example, pegs Brazil's 2013 coffee production at 49.15m bags – 4.5m bags below the bureau's estimate. Data ahead The data actually come ahead of an upgrade on Thursday by Conab to its own production numbers, the first since January, before the heat damage had set in. Then, Conab pegged the crop at 46.53m-50.15m bags, comprising 35.07m-37.53m bags of arabica beans, and 11.46m-12.62m bags of robusta. At Citigroup, Sterling Smith forecast that Conab's estimate would "come in the lower range of expectations, and possibly sub-45m bags". Arabica coffee futures for July stood 0.4% lower at 190.05 cents a pound in New York at 06:00 local time (11:00 UK time). In London, robusta coffee for July was up 0.1% at \$2,131 a tonne. © Agrimoney 2010
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New York Coffee futures closed 520 points lower
New York Coffee futures closed 520 points lower basis July at 195.80 cents per pound. The market took a bearish turn after the release of several reports indicating that the situation in Brazil may not be as bad as once thought. Somar released their report indicating that the “El niño” phenomenon would reduce the likelihood of possible freezes and would also alleviate the drought situation in Brazil. News of substantial carryover stocks from the 2012/13 crop also helped push the market lower with reports stating numbers as high as 12.5 million bags. Comexim also published higher current crop yields estimating a 2014/15 Brazil crop sized at about 48 million bags, contradicting previous estimates of 8-10 million bag losses. In Macroeconomic news, The Dollar strengthened following the European Central Bank’s announcement of a possible lowering of interest rates. Technically speaking, the market seems to have lost some of its steam and broke the important 200 support level. Open interest has increased 664 lot to a total of 158,963 lots. In the short term, the July chart shows support between 194 and 189 and resistance between 200 and 207. Tomorrow June options expire London record 230 lots issued against May with one clearer making up a major part of both sides with most of the coffee being Vietnam. The working exposure in the spot month was reduced by 254 lots as a result taking the working position to 980 lots starting today. 338 lots were graded today which suggests that we have generated some traction in grading this week. The numbers of coffee arriving and parcels available to the market still appear not to calculate indicating that the offtake into industry has remained very good in the opening four months of the year even better than was originally forecast. Some of the European stock numbers which have been circulating suggest not much change in the overall position between end of February into March, but it is the April figures which will be more important. Prices held a tight range into the afternoon with the configuration of London following the same pattern with sorting of July spec longs created nearby pressure widening the structure and encouraging rolling of hedge shorts. Light origin selling remained in place near to the price action and price fix buying materialized on a scale which explained the tight operating range. |
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