Sep 22

Coffee Weekly Report - 2023 09 22

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  • Coffee prices this week struggled to break the 160 c/lb resistance, influenced by weather developments in Brazil.

  • Recent near-zero rainfall and high temperatures raised worries about flowering and crop growth for 24/25 at first. However, data suggests crops fared better than in 2021 or 2022.

  • Farmer selling data indicates improved liquidity but still lags behind expectations. The outlook for higher stocks going into the year's last quarter, when other arabica origins begin the harvest, also exerts downward pressure on prices.

  • Weather forecast models show divergence, with the American model predicting near-zero rainfall, while the European model is slightly more optimistic. Rains are needed to maintain crop health and reduce pest risks, such as broca, which thrives in dry conditions and high temperatures, especially in densely planted lower-altitude areas.

Brazilian weather shakes the market again

This week, coffee prices failed to break out of the 160 c/lb resistance mark on the second contract. Most of the effect can be attributed to the return of precipitation on forecasts in the first week of October in Brazil, following two weeks with no rains on the radar.

Still, it’s important to look at the underlying factors behind the regained optimism. The past week was marked by near-zero rainfall levels and temperatures up to 6°C higher than normal for the period – which could threaten the current flowerings and chumbinho growth for the 24/25 crop.

Despite the worrisome weather pattern, recent data shows that crop areas were not as heavily hit as in 2021 or 2022. Chart #1 shows the NDVI Index in Cerrado, and Chart #2 shows the same metric for Sul de Minas. The index that measures crop health according to the capacity to absorb solar light suggests that conditions have actually improved in the third week of September.

Consequently, the weather threat was subdued, and prices responded accordingly.

Image 1: NDVI Anomaly – Cerrado (Index)

Source: USDA

Image 2: NDVI Anomaly – Sul de Minas (Index)

Source: USDA

It’s also important to highlight the results from farmer selling data in Brazil, indicating that while liquidity has improved when compared to August, this crop’s sold volume is still below the average expected for the period.

This perspective of higher stocks going into the last quarter of the year – when other arabica origins begin their harvest – also weighs down on prices.

Differently from the past week, forecast models are now starting to deviate: the American model suggests near-zero rainfall levels over most coffee areas – except for regions in Sul de Minas and Zona da Mata – whereas the European model already shows a slightly more optimistic view.

Still, rains must follow through to maintain the optimum NDVI levels seen so far, and also to lower the likelihood of pests. For instance, broca: Dry conditions may boost coffee borer beetle activity, with higher temperatures speeding their life cycles, particularly in densely planted lower-altitude areas.

Image 3: Farmer Selling Brazil – Arabica (% of total)

Source: Safras & Mercado

Image 4: Precipitation Anomaly Forecast – Sep/23 to Oct/7 (% of normal)

Source: World Ag Weather

In Summary

Coffee prices faced resistance at 160 c/lb this week due to concerns over Brazilian weather. Despite a dry spell and high temperatures that threatened crop health, data indicates better conditions than in 2021 or 2022. While liquidity improved, farmer selling remains below average expectations.

The prospect of higher stocks in the last quarter of the year, coinciding with other arabica origins' harvests, is also impacting prices. Weather forecasts differ, with the American model predicting minimal rainfall and the European model showing a slightly more optimistic outlook. Rains are crucial for crop health and pest control, particularly the coffee borer beetle, in lower-altitude, densely planted areas.

Weekly Report — Coffee

Written by Natália Gandolphi
Reviewed by Pedro Schicchi


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