Oct 13

Coffee Weekly Report - 2023 10 13

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  • Recent rainfall in Brazilian coffee regions triggered a second flowering for the 24/25 season, increasing optimism regarding next year’s arabica supply.

  • Still, precipitation varied widely, with 35% of arabica regions experiencing over 300% of average rainfall and 22% receiving 0-80%.

  • Active El Niño affects temperatures, impacting conilon in October and causing elevated temperatures in Espírito Santo and Bahia in December.

  • Rondônia faces below-average precipitation in October, while Espírito Santo and Bahia show mixed correlations. Conilon areas expect below-average rainfall in the next two weeks, warranting attention, while concerns for arabica diminish with replenished soil moisture.

  • Notably, this year's El Niño differs from past occurrences, with more differences than similarities.

Brazilian Weather Update

Over the past week, coffee areas in Brazil received rainfall levels that triggered the second flowering of the 24/25 season, especially when it comes to arabica. Still, it’s important to note that volumes were not uniform across all areas: whereas 35% of arabica regions received rains above 300% of the average expected for the period, another 22% reported rains between 0% and 80% of normal. As for conilon areas, rainfall levels were even less homogeneous across the board: 65% of areas received precipitation levels between 0% and 80% of the normal levels expected for the period.

Still, it’s important to note that as we enter the last quarter of the year, the currently active El Niño has different impacts over arabica and conilon areas. During the last quarter of the year, the El Niño phenomenon can lead to an increase in temperatures in coffee-producing regions. In October, the conilon-producing region most affected is Rondônia, but Espírito Santo and Bahia are also affected. In December, the effect is different: temperatures well above normal in Espírito Santo and the Bahia Atlantic, while Rondônia records temperatures slightly below average (Appendix I).

Image 1: Arabica production share by precipitation anomaly

Source: Somar, Bloomberg, IBGE, hEDGEpoint

Image 2: Conilon production share by precipitation anomaly

Source: Somar, Bloomberg, IBGE, hEDGEpoint

Regarding rainfall, the scenario remains pessimistic for Rondônia's production: precipitation below normal in October, a crucial period for fruit filling. On the contrary, Espírito Santo and Bahia do not show strong correlations with the El Niño effect on rainfall.
When we look at the last weeks of the year, the picture also changes in terms of precipitation: rainfall returns to the expected average in Rondônia, while Espírito Santo and Bahia may experience below-normal rainfall (Appendix II).

Over the next two weeks, precipitation levels are expected to be slightly below-average for conilon areas, whereas arabica areas carry less concern. With recent rains replenishing soil moisture and average levels expected for the next 14 days, especially in the South of Minas Gerais, immediate concerns regarding Brazil’s 24/25 arabica crop are dissipating by the minute. Conilon, on the other hand, still warrants attention.

Looking at this year’s precipitation levels and past occurrences, it’s important to note that there are currently more differences than similarities when compared to previous years when El Niño was active (for instance, 2010 for arabica, Chart #3).

For conilon, volumes are less volatile across the board considering data until the end of September – the trend usually fans out in the last quarter (Chart #4).

Image 3: Monthly Cumulative Precipitation – South of Minas Gerais (mm)

Source: USDA, hEDGEpoint

Image 4: Monthly Cumulative Precipitation – Espírito Santo (mm)

Source: USDA, hEDGEpoint

Appendix I - Temperature anomaly during El Niño events

Source: hEDGEpoint

Source: hEDGEpoint

Appendix II - Precipitation anomaly during El Niño events

Source: hEDGEpoint

Source: hEDGEpoint

In Summary

Recent rainfall in Brazilian coffee regions triggered a second flowering in the 24/25 season, particularly for arabica. However, precipitation varied widely, with 35% of arabica regions experiencing over 300% of average rainfall, and 22% receiving 0-80%. The active El Niño impacts temperatures in coffee regions, affecting conilon in October but causing elevated temperatures in Espírito Santo and Bahia in December.

Rondônia faces below-average precipitation in October, while Espírito Santo and Bahia show mixed correlations. Conilon areas expect below-average rainfall in the next two weeks, warranting attention, while concerns for arabica diminish with replenished soil moisture. Notably, this year's El Niño differs from past occurrences, with more differences than similarities.

Weekly Report — Coffee

Written by Natália Gandolphi
[email protected]
Reviewed by Victor Arduin
www.hedgepointglobal.com

Disclaimer

This document has been prepared by hEDGEpoint Global Markets LLC and its affiliates ("HPGM") exclusively for informational and instructional purposes, without the purpose of creating obligations or commitments with third parties, and is not intended to promote an offer, or solicitation of an offer, to sell or buy any securities or investment products. HPGM and its associates expressly disclaim any use of the information contained herein that may result in direct or indirect damage of any kind. If you have any questions that are not resolved in the first instance of contact with the client ([email protected]), please contact our internal ombudsman channel ([email protected]) or 0800-878-8408 (for clients in Brazil only).

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