Aug 9 / Laleska Moda

Brazil’s 24/25 crop expected to fall 4.4%, closing at 63.3 M bags

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  • The Brazilain 24/25 harvest is already at 92%, with the robusta field works almost done (99%), while 88% of arabica was harvested until this week. However, as the Brazilian harvest draws to a close, the prospects for a smaller cycle are confirmed.

  • While there has been some improvement in relation to the start of the harvest, the processing yield and screen of coffee beans continues to be inferior to 23/24.

  • Given this scenario, we have lowered our forecast for 24/25: arabica production is now expected to reach 43.2 M bags (down 1.1% vs. 23/24), versus 44.7 M bags previously estimated; for robusta, we estimate production at 20.1 M bags ( minus 10.7% vs. 23/24), versus 21 M bags previously estimated for the cycle.

  • On the demand side, we expect a shift towards arabica consumption, given current robusta prices and the spread between the two coffees.

  • In terms of exports, we are expecting an increase in shipments, especially for Robusta, in view of last season's trends and current prices. The analysis for the first months of 24/25 already shows expressive exports for the variety, as the Brazilian beans are necessary to fill the space left by Vietnam and Indonesia.

Brazil’s 24/25 crop expected to fall 4.4%, closing at 63.3 M bags

The Brazilian 24/25 coffee harvest is coming to an end: until last Tuesday, 92% of the crop was harvested, above the 5-year average of 89%. The field work for the robusta were mostly done (99%), while 88% of arabica harvested until this week. For both varieties, the pace of harvest was higher than previous cycles, favored by the drier weather conditions.

However, adverse weather conditions at the end of 2023 and start of 2024 seems to have affected the total output of the crop. While there were some improvements from the start of the harvest, 24/25 had predominantly smaller screen sizes than other seasons, affecting the processing yields of the crop. There was also reported that higher average temperatures led to uneven maturation and caused more cherries to become overripe and fall to the ground, leading to higher percentage of varrição coffee. On the other hand, drier weather conditions helped to achieve better cup quality, including in the varrição coffee.

The decline in processing yields has also led us to revise our forecasts downwards: our estimates for 24/25 are for production of 63.3 M bags, lower than our previous figure of 66 M bags and down 4.4% from 23/24. Arabica production is 1.1% lower than 23/24, at 43.2 M bags, compared to 44.7 previously estimated for this season. As for robusta, our expectation is a production of 20.1 M bags (against 21 M bags previously estimated), a drop of 10.6% in relation to 23/24.

 Supply and Demand - Arabica - Brazil (M bags)

Source: Hedgepoint

Supply and Demand - Conilon/Robusta - Brazil (M bags)

Source: Hedgepoint

It is important to highlight that we expect some changes in demand in 24/25. Domestic demand for arabica could reach its highest level since 16/17, driven by increased use of the variety in the domestic mix. Since the end of 2023, robusta prices have risen sharply and the spread between the two varieties has narrowed, especially for the lower grades used in the national mix. The spread between arabica 600 defects and robusta/conilon 7/8 even reached negative figures, meaning that the latter was even trading at higher prices than arabica, encouraging the change in mix in recent months.

Given this scenario and the attractive FOB differentials for robusta this year, we also expect higher exports for the variety in 24/25. Cecafé data already shows that cumulative green robusta exports until June 2024 have reached 4.2 M bags, more than five times higher than the same period in 2023 and well above previous years' levels. Brazilian beans have been in high demand since the end of 2023 due to declining supplies from Vietnam and Indonesia.

Spread Arabica 600 def - Conilon 7/8 (R$/sc)

Source: Safras & Mercado, Hedgepoint

Global Coffee Balance (M bags)

Source: Hedgepoint

Although Indonesian exports are expected to increase in 2024 due to higher availability, Vietnam 24/25 production could still be on the lower side. Thus, our expectations are that the Brazilian conilon to be well demanded this season to offset the Southeast Asian decline, with total 24/25 exports ending at 11.1 M bags.

One important note is that the Brazilian crop reduction reinforces the scenario of a global deficit in 24/25, even though recent data suggests that global demand in destinations such as Europe and Japan is showing signs of weakening as prices remain high. Considering a 0.8% drop in demand in 24/25 would still lead to a deficit close to 4 M bags, which could translate into support for prices in the medium term, although we should closely monitor possible futures impact on demand.

In Summary

The Brazilian 24/25 coffee harvest is coming to an end. However, production estimates have been reduced from previous figures due to lower processing yields. Our figures now indicate a total production of 63.3 M bags, a decrease of 4.4% compared to 23/24. Domestic demand is expected to see some changes, with increased demand for arabica in the national mix, due to the narrowing of the price spread between arabica and conilon in recent months, especially for the lower grades.

In terms of exports, we expect to see an increase in Arabica and especially Conilon, given the increased demand for Brazilian beans and lower supply in Southeast Asia. On the other hand, in terms of the global balance, we could be heading for a fourth year of deficit. Although demand could be affected in 24/25 due to the current high prices, supply is expected to remain limited due to lower yields in Brazil and Vietnam.

Weekly Report — Coffee

Written by Laleska Moda

laleska.moda@hedgepointglobal.com

Reviewed by Livea Coda
livea.coda@hedgepointglobal.com
www.hedgepointglobal.com

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