Production of Robusta is coming under pressure in Brazil, primarily as a result of drought in important producing regions, with Robusta trading at levels above that of Arabica as a result.
In January, Brazilian coffee trader Terra Forte said it expected Brazilian coffee production to decline by nearly 12 per cent in 2017/18. After the record production of around 44 million bags, the Arabica crop looks set to fall to just 38.2 million bags, primarily because this will be the low-yield year in the two-year cycle. The trader said production of Robusta crop would also fall in 2017/18 because many growers are reducing their acreage in favour of other products. Moreover, conditions are too dry for a better crop and restrictions on irrigation – which were lifted for a while – have been imposed again.
Commerzbank Research said this outlook is likely to lend support to the coffee price in the medium term, especially given that the Robusta coffee market has been tight for some time. In Vietnam, the largest Robusta producer, harvesting of the 2016/17 crop is now complete. The median production estimate given by traders surveyed by Bloomberg is 24.8 million bags, following a figure of over 27 million bags last season. Coffee production in India, after achieving 5.8 million bags last year, is likewise expected to total only 5.3 million bags.
Jack Scoville, a veteran futures market analyst at Price Group, said Brazil remains ‘a tale of two crops,’ with the Robusta crop ‘decimated’ but the Arabica crop apparently doing pretty well. “We keep seeing low results for Robusta production,” he told C&CI. “The Robusta market there has been on fire price wise, trading above Arabica for the last couple of months. This has changed the demand profile in Brazil itself.
“Demand internally has shifted to low grade Arabica from Robusta, and the offer of lower grade Arabica into the world market. It is making the export pace finally start to come down. That is not the only problem in the Robusta world. Vietnam has had less on offer and that has pushed prices for Robusta in the world market very high.”
Mr Scoville said the big can roasters like Folgers or Tasters Choice are going after low grade Arabica. “Demand for coffee with defects has gotten a lot stronger. Central America is seeing the best demand for these coffees in years,” he told C&CI. “Bid prices are low, but they are there and some are selling. I expect this demand to last most of the year, or at least until Central America is sold out.
For more information see the forthcoming March 2017 issue of Coffee & Cocoa International.