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Brazil rains renew hopes for monster coffee crop next year

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The return of rains to Brazil’s key coffee areas has traders once again banking on a record crop next year in the world’s top producer.

While a drier-than-usual September raised concerns about the crop’s size, rains in the top growing regions this month are now helping to trigger a second wave of flowering. Still, more showers are needed to ensure the blossoming flowers turn into cherries containing beans to be picked next year.

Brazilian output is expected to rise as trees that produce the arabica beans favoured by Starbucks Corp enter the higher-yielding half of a two-year cycle, while supplies of the robusta variety used in instant coffee also recover.

With many months before harvesting starts around April or May for robusta, and a month later for arabica, the weather could still take a turn for the worst.

“The market is expecting a crop well above 60mn bags,” Joseph Reiner, head of coffee at Cofco International, said last week before the Swiss Coffee Trade Association’s annual dinner.

“The area and agronomical potential is definitely there for such a number, but one needs to count the cherries on the trees and that’s still three months away. At this point in time it could be 65mn or it could be 55mn.”

A bigger Brazilian crop could help flip the global market into a surplus next season, reversing a shortage Volcafe estimates at 7mn bags in 2017-18.

The size of next year’s crop will depend on rains from December to February, Keith Flury, head of coffee research at the trader, which is one of the world’s largest, said in an interview in Geneva last week.

The outlook for more supply is already affecting prices, with arabica futures falling 11% since mid-September.

Some weather and crop figures: Rains in Brazil’s biggest arabica-growing region of southern and southwest Minas Gerais totalled 38.2 millimetres last week, 76% above the average, forecaster Somar Meteorologia said. Showers favoured flowering in southern Minas Gerais and the Cerrado area last weekend, with more expected in Sao Paulo this week, said Cepea, a University of Sao Paulo research group.

Improved weather means robusta output will jump 32% to 16.5mn bags, according to Rabobank International analyst Carlos Mera.

“Opinions are divided” on the arabica crop however, Mera said in Geneva. “Some are concerned about the dryness and the falling leaves, while others argue that the dry weather that stressed the trees just before the rainfall we are getting now will be good for the flowering.”

Trees that have less leaves than normal and areas with poor husbandry are also yielding good flowers, though buds need to remain on branches, Cofco’s Reiner said. Brazil has the potential to produce 60mn to 65mn bags in the long term, but that would require area to expand to offset any weather impact, according to Thiago Cazarini, a broker at Brazil’s Cazarini Trading Co. “For this big crop people are talking about to come, the weather will need to be perfect,” Cazarini said in Geneva. “We haven’t seen that in a long time.”

More supplies are also coming at a time some analysts see demand growth slowing. Italian roaster Illycaffe says consumption is no longer growing at the rate of about 2%, and the US Department of Agriculture estimates growth will slow to 1.3% from 2.2% last season.

Speculators are already holding a large bearish position in New York coffee futures, which means a big Brazilian crop next year may already priced in.

“Many people in the market expect a very large crop, and if expectations are not met and we turn around and realise that inventories are low, then the price impact certainly could occur,” Volcafe’s Flury said. “If everything is benign, the weather is OK and the crop comes in at expectations, then you have to say that things will probably be relatively calm.”