Brazil & Southern Cone - January 2012 (ISSN 1741-4431)

The world coffee industry is expecting a bumper Brazilian crop in 2012/13. The Conab, the agriculture ministry’s research arm, was forecasting a crop of just over 50m (60kg) bags before Christmas. Now, it expects a crop of over 52m bags. The expectation of a bumper Brazilian crop is keeping a lid on prices for arabica (the main Brazilian coffee type), which have been steady at US$2.27 per pound since mid-December. Prices peaked in April and May 2011 when they bounced between US$3 and US$2.70 a pound.

Bulls are starting to suggest that coffee prices could jump again because the market has not factored in the likelihood of increased domestic consumption in Brazil in 2012. If that happens, global demand for coffee could exceed supplies and stocks, especially as Latin America’s second biggest producer, Colombia, seems to be in an unstoppable decline.

Unlike the rest of the world’s coffee producers, Brazil does not work on an October to September coffee year. Its year is July to June, but the size of the crop should become clear in March/April, when picking starts.

In the 2011 crop year, long finished in Brazil, though not in Central America or Colombia, the world coffee crop came to 132.4m bags, of which Brazil provided 43.5m bags, down from 48.1m in 2010.

Brazil’s coffee crop has a two-year cycle, with every even-numbered year producing a crop that is between 10% and 25% higher than the previous year’s crop. Over the past five years, Brazil’s annual output has been on a steep upward trend. The previous “off” year of 2009 saw production of 39.5m bags. So the 2011 “off” year saw a crop that was 10% higher than the previous “off” year.

“On” year production is also rising, though not as impressively. In 2010 the “on” year production of 48.1m bags was just under 5% higher than the previous “on” year output of 45.9m bags. The main variation in Brazilian production is caused by a variation in Arabic output: robusta output is much steadier, year-to-year.

In 2011 Brazil harvested 32.2m bags of Arabica coffee and 11.3m bags of robusta coffee. In 2012 the forecast is for at least 37.7m bags of arabica and 12.9m bags of robusta (which are mostly used for instant coffee).

The other big change in Brazil is the increasing domestic coffee consumption.  In calendar 2010 Brazil consumed 18.9m bags of coffee, up 4% on 2009. This rate of increase, however, was lower than overall GDP growth. As wages continued to outstrip inflation in 2011, Brazil’s coffee consumption may have increased rather faster in 2011 than it did in 2010, though no official figures are yet available.

The International Coffee Organization (ICO) argues that the world coffee market continues to remain tight. The main imponderables are Vietnamese production (which is large but low-quality and depends on large amounts of water and fertiliser, so is vulnerable to sudden changes) and Brazilian domestic consumption. The ICO reckons that in calendar 2010 world consumption amounted to 135m bags, with exports of 87.7m bags, worth around US$17bn.

In 2011 the ICO estimates that the volume of coffee traded increased to 104m bags and the value of this business shot up to US$23.5bn.

• In 2011 Brazil exported a record 33.46m bags (up 1% on 2010), according to the country’s Coffee Exporters Council (Cecafé). The value of these exports came to US$8.7bn, according to Cecafé, up 54% on 2010. By value, coffee accounted for 3% of Brazil’s total exports and 9% of its agricultural exports. In 2011 a thumping 84% of the coffee exported from Brazil was Arabica, while 13% was instant coffee and 3% was robusta (beans and ground).