Coffee futures are “vulnerable to an upside run”, thanks to the threat to Brazilian output from insect pests, analyst Judith Ganes-Chase said, cautioning over “some angst” over Vietnamese production too.
With 2018 an “on year” in Brazil’s cycle of alternate higher and lower arabica output years, and dryness easing in robusta-growing districts, it could “see production top 60m bags” in the top coffee-growing country, setting a record high, Ms Ganes-Chase said.
However, the outlook is being clouded by an outbreak of the coffee borer beetle, whose spread is being seen as encouraged by bans on the use of endosulfan, an insecticide being phased out worldwide because of its risks to human health.
“If the situation is left to fester, it could potentially create havoc with the next crop,” said Ms Ganes-Chase, at J Ganes Consulting.
Indeed, while the borer outbreak is seen has having had some effect on the 2017 harvest, “the really worry should be for how it affects 2018 output”, for which a strong result is needed to “help Brazil start to replenish low inventories.
“There is very little leeway for a production issue given the modest producer stocks on hand,” Ms Ganes-Chase said, adding that it is “paramount that Brazil quickly put this under control”.
A failure to curb borer damage “would be a game changer for the market.
Indeed, futures are “vulnerable to an upside run” because of the pest threat, “and the situation should be monitored carefully”.
‘Reasonable to expect some angst’
Rainfall in Vietnam – the second-ranked coffee-growing country, and the top producer of robusta – “also needs to be monitored”, she said, following excessive precipitation.
“Vietnam continues to be inundated with episodes of extremely wet weather—more so than usual—and this is starting to raise some concerns.
“It would seem reasonable to expect some angst over the weather in Vietnam and the impact it is having on the next [2017-18] crop, which is developing on the trees.”
The concerns follow a poor-quality 2016-17 crop, which “has contributed to a feeling of supply tightness of robusta [beans] this season”, although it appears coffee plantations have so far escaped serious damage from the inundations.
The comments follow data from Cecafe this week showing Brazilian coffee exports last month recording the lowest July figure in at least a decade, depressed by weak supplies coming from producers.
This has been attributed in the main to wet weather slowing the bean-drying process, and to a reluctance by farmers to sell at prices which, in June, touched a 15-month low in New York’s arabica futures market.
However, on a more positive note for supplies, the IBGE institute on Thursday raised by 33,000 tonnes, to 2.23m tonnes (37.2m bags) its forecast for Brazil’s arabica coffee harvest this year, citing an upgrade to the area estimate, offset in part by a reduced yield figure.
The robusta crop was pegged at 599,000 tonnes, an upgrade of 9,700 tonnes, reflecting improved yield ideas, following improved weather.