Dec 29

Coffee Weekly Report - 2023 12 29

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  • The primary focus in the coffee market centers on Brazil's weather conditions during the critical development stage of the 24/25 crop.

  • In Três Pontas, Minas Gerais, a vital coffee-producing region, cumulative rainfall from October to mid-December is 30% below normal, heightening concerns about potential yield impacts.

  • In the São Mateus region of Espírito Santo, despite widespread irrigation, only 20% of expected rainfall levels have been received during the same period, indicating a more severe situation.

  • The current hydrological balance in the Southeast mirrors the conditions of 2020, which preceded the 21/22 crop failure, resulting in a 3% decrease in average coffee yields compared to the previous production off-year (19/20). Forecast models predict a continued decline until early January, with areas in Minas Gerais, Mogiana, and Paraná expected to receive only 80% of normal rainfall levels.

Weather Challenges for Brazil’s 24/25 Crop

The current focal point in the coffee market revolves around the weather conditions in Brazil, particularly concerning the ongoing 24/25 crop.

This phase is crucial, as it marks the filling stage, and historical data indicates that inadequate precipitation during this period can significantly affect yields.

A pressing issue is evident in the Três Pontas region of Minas Gerais, where cumulative rainfall levels from October to the third week of December are alarmingly 30% below the normal range. This region heavily relies on precipitation, making the situation precarious.

Meanwhile, in Espírito Santo, specifically in the São Mateus region, the situation is even more troubling. Despite the majority of areas in the state being equipped for irrigation, the São Mateus region has only received a mere 20% of the expected rainfall during the same period.

Figure 1: Cumulative Precipitation – Três Pontas Region (mm)

Source: USDA, CPC

Figure 2: Cumulative Precipitation – São Mateus Region (mm)

Source: USDA, CPC

The hydrological balance in the Southeast is already reminiscent of 2020, a precursor to the 21/22 crop failure. During that period, average coffee yields plummeted by 3% compared to the previous production off-year (19/20). This decline was a consequence of unfavorable weather conditions.

Adding to the concerns, forecast models predict a continued decline in the hydrological balance until the first week of January. The anticipated rains may not suffice in replenishing the recent impact.

Projections indicate that regions in the South of Minas Gerais, Mogiana, and Paraná may receive only up to 80% of the normal rainfall levels. This forecast raises apprehensions about the potential impact on coffee production in these critical areas.

Figure 3: Hydrological Balance – Southeast Brazil (GWmed)

Source: Refinitiv

Figure 4: Precipitation Anomaly Forecast – Dec 29 to Jan 12 (% of normal)

Source: World Ag Weather

In Summary

In summary, the coffee market is closely monitoring the weather conditions in Brazil, especially in the South of Minas Gerais and Espírito Santo regions, represented here by Três Pontas and São Mateus, respectively.

The subpar precipitation levels pose a significant threat to the ongoing 24/25 crop, reminiscent of the challenges faced in 2020 that led to a decline in coffee yields. The forecasted continuation of unfavorable weather patterns adds to the anxieties, warranting vigilant observation in the coming weeks.

Weekly Report — Coffee

Written by Natália Gandolphi
natalia.gandolphi@hedgepointglobal.com
Reviewed by Lívea Coda
livea.coda@hedgepointglobal.com
www.hedgepointglobal.com

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