Forecast And Subdued Outlook For Prices Maintained
BMI view: We maintain our forecast for Brazilian coffee production to reach 46.0mn bags in 2013/14 as CONAB revised output down again in September, forecasting production at 47.5mn bags, compared to initial estimates of between 46.9 and 50.2mn bags. The country's coffee exports have been in line with recent seasonal trends, but still strong for a down-year. The government's recently announced support to the coffee sector will have less impact than expected on farmers' income and production. Still, we expect prices to stay subdued in the near term.
We maintain our forecast for Brazilian coffee production to reach 46.0mn bags in 2013/14 as CONAB revised output down again in September, forecasting production at 47.5mn bags, compared to initial estimates of between 46.9 and 50.2mn bags. Even though the area planted with coffee trees has steadily decreased in recent years and the country is in the down-year of its biennial production cycle, yields have improved significantly and are supporting production growth. CONAB forecasts yields at 23.6bags/ha in 2013/14, slightly lower than 24.5bags/tonne in 2012/13, but much higher than 18.5bags/ha in 2009/10.
|Brazil - Coffee Area Planted ('000 ha) & Productivity (bags/ha)|
Over the past few months, the country's coffee exports have been in line with recent seasonal trends, but still strong for a down-year. In fact, coffee exports are so far higher than over the same period in 2012/13, where production was estimated to reach 50.0-55.0mn bags from the start of the season. This can be partially explained by price trends as growers hoarded their supply during the start of the 2012/13 in order to prevent prices from collapsing further, while producers now see more of the price collapse behind them.
|Strong For A Down Year|
|Brazil - Monthly Coffee Exports ('000 bags)|
Even though Brazil is considering allowing more coffee imports in order to improve the quality of coffee blended in the country, we believe the country will remain the world's largest net coffee exporter in the medium term. Local industry sources have indicated that the country would consider importing about 30.0% of the coffee it consumes from abroad in order to improve its blends. We calculate that it would amount to about 3.0mn bags, which would be minimal compared to the 31.0mn bags the country exported in 2012/13, leaving it at the top ranks of global coffee exporters.
We reiterate our view that the government's recently announced support to the coffee sector will squeeze quality supply rather than guarantee above market prices to most of the country's coffee farmers. Brazilian growers are still awaiting details of the programme but the support price announced, at BRL343 (US$129) per 60-kilogramme bag is well above current global prices, and should partially help growers to face financial hardship because of depressed market prices. However, local industry sources have indicated that the government's high-quality standards for purchasing coffee from farmers would de facto privilege the best-quality growers at the expense of most local farmers. Only the storage funding capacity (at BRL284mn) combined with a working capital facility for growers (at BRL284mn), also included in the support, could benefit to all coffee growers in the sector and encourage output growth.
|Close To A Base|
|Front-Month ICE Coffee (USc/lb, daily) & RSI (Below)|
As a result of these dynamics, we are still relatively cautious on coffee prices as, even if they have rebounded slightly in recent weeks, as we do not see any major technical support before the USc100/lb level. Prices have moderated to USc112/lb when the Brazilian real dipped to its lowest level in the past four years but have recovered since then. We expect coffee prices to remain weak in the near term and forecast coffee prices to average USc115/lb in 2014.
|Notes: e BMI estimates. f BMI forecasts. Sources: 1 CONAB; 2 International Coffee Organisation.|
|Coffee Production, '000 60kg bags 1||43,400.0||50,800.0||46,000.0||52,000.0||46,500.0||54,000.0|
|Coffee Consumption, '000 60kg bags 2||19,980.0||e||20,479.5||20,991.5||21,411.3||21,839.5||22,276.3|