Apr 26 / Natália Gandolphi

Coffee Weekly Report - 2024 04 26

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  • This report analyzes the current weather situation in Vietnam and its impact on the 24/25 crop. It highlights the relationship between rainfall and yields, with correlation peaking in July. April is crucial for observing changes in rainfall as it marks the start of the rainy season, which influences the flowering stage.

  • Current rainfall levels in the Central Highlands are only a third of expected volumes, which is not the lowest in the past decade. In 2014, the region experienced just 13% of normal levels, indicating potential for more severe deficits.

  • If the current trend continues, the 24/25 crop could be threatened by inconsistent rainfall. Historical data suggests a potential 2% decrease in yields for the 24/25 cycle compared to the 23/24 cycle, if the situation persists.

  • However, rainfall forecast models suggest improvement over the next two weeks, offering potential for recovery, emphasizing the importance of monitoring precipitation levels and their effect on crop development.

Weather in Vietnam: What are the potential damages?

In this report, we will analyze the current weather situation in Vietnam, observing the possible impacts for the development of the 24/25 crop in the country.

First, it’s important to establish the relationship between weather and changes in yields: Figure 1 shows the correlation between cumulative rainfall and yields, considering data from the past 7 years, shown in a 10-day moving average.

Correlation naturally increases starting in April, reaching a peak in the first week of July. The largest gain in correlation happens throughout April, which demands attention as we reach the end of the month, since we have diminishing returns from correlation from that moment on.
After July, the metric starts to decrease toward the end of development, since further rainfall levels closer to the harvest aren’t as relevant as during flowering of the cherry filling stage.

Therefore, there are still a few months ahead of the current period to reach peak correlation between precipitation and yields. And that is the relationship being observed in Figure 2: higher precipitation levels historically correlate to year-over-year growth in total yields. Of course, other factors will also kick in, but the consistency in rainfall levels presents itself as one of the key major factors to be analyzed in this period.

Figure 1: Cumulative Rainfall vs. YoY Yield Change Correlation – Vietnam (10-day moving average)

Source: Refinitiv, USDA

Figure 2: Distribution – Precipitation vs. Yield Change – Vietnam

Source: Refinitiv, USDA

April marks the beginning of the rainy season that will shape up crop production within that same year, with volumes increasing for the next 5 months, comprising of the flowering and cherry filling stages.

In this scenario, considering the data that is available so far for this cycle, and the already present relationship between precipitation levels and productivity, the rainfall deficit would point to a 2% decrease in yields, comparing the 23/24 cycle to the 24/25 cycle.

Currently, the Central Highlands region is reporting rains at only a third of the expected volume until April 23rd – still, that is not historically the lowest recorded in the past 10 years. In 2014, the cumulative volume was only 13% of normal levels for the period!

Consequently, there is still time for recovery – and precipitation forecast models suggest that rains will indeed pick up in the next two weeks. Still, if the current scenario persists, 24/25 crop development could indeed be threatened by inconsistent rainfall.

Figure 3: Cumulative Precipitation – Central Highlands (mm)

Source: Refinitiv

Figure 4: Soil Moisture – Vietnam and Indonesia  (Volumetric Moisture Content)

Source: NOAA, Hedgepoint

In Summary

This report examines the current weather situation in Vietnam and its possible impact on the 24/25 crop. There is a strong correlation between rainfall and yields, peaking in July, and April is crucial for its increasing returns on correlation.

Rainfall is essential for flowering and cherry filling stages, and current rainfall is only a third of expected levels in the Central Highlands region. If the current situation persists, the 24/25 crop could be threatened by inconsistent rainfall. Historical data shows potential for a 2% decrease in yields compared to the 23/24 cycle. However, models suggest rain will improve in the next two weeks – which will be closely watched by the market, as a support indicator for London, and, to a lesser extent, NY.

Weekly Report — Coffee

Written by Natália Gandolphi
Reviewed by Laleska Moda


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