2011 – 2012 Coffee Crop

Brazil, biggest exporter of Latin America, expects its coffee crop to decline by 13%. One of the reasons for that is the biennial cycle of the low productivity of coffee plants. Nevertheless, this year Brazil expects to harvest the biggest crop for a low-productivity season. It is preliminary estimated at 42-44 million bushels. In 2010 Brazil’s coffee crop was 48,1M bushels.

In October-December 2010 the coffee exports from the Dominican Republic, Mexico, Columbia, Guatemala, Nicaragua, Honduras, Costa Rica, Salvador and Peru made up 5,405 million bushels. Mexico was the only country that had reduced the export (-17%) while the max increase was shown by Honduras (148.59%) and the Dominican Republic (51.12%). It should be reminded that the previous crop (Oct 2009 – Sept 2010) allowed the 9 countries to export 23,426 million bushels of coffee. The forecast for 2011 is generally positive for the region, which is expected to partially make up for the decline shown by Brazil.

Brazil’s coffee reserves in 2010 declined down to 12M bushels, rather low value for the country. It means that the reserves are insufficient and there is no “safety bag”, which may expand the global deficit of coffee and make the coffee prices grow around the world. The thing is that Brazil is the major coffee producer and exporter (35%). So, even if all the other exporters show positive figures (better than expected) the overall yield will be insufficient.

Moreover, Brazil’s domestic consumption of coffee is expected to rise by 5%, which will inevitably initiate an increase in the domestic demand for coffee (by the way, Brazil is the leader among the exporting countries in terms of coffee consumption).  In 2012 Brazil may even outpace the US. The domestic consumption in Brazil has been gaining 4% every year on average since 2003, which has been conditioned by growing purchasing power and consumption of coffee beverages abroad. The mentioned tendency is also connected with the fact that the export growth is lower than the production growth. The consumption of coffee per capita grows faster than the average global value (about 1,5 – 2 % a year). In 2010 the consumption gained 3,4 %, up to  4,8kg per capita (as compared with 4,65kg in 2009). Taking into account the relatively warm climate of Brazil, it is still far from reaching the consumption volumes of Finland, Norway and Denmark (13kg of coffee per capita every year).

In Brazil coffee is harvested in April-October, which means that the harvest season in Brazil (the southern hemisphere) coincides with those seen in the northern hemisphere in October-September. That is why the ICO includes Brazil’s current coffee crop in the overall crop of the 2011/2012 agricultural year.

The yield forecast for Columbia in 2011 is also unfavorable, predicting less than 9M bushels (the level of 2010). This is going to be the 4^th consecutive poor crop of coffee in this country (for comparison sake, the crop yield of 2007 is 12.5M bushels). The main reason is that the coffee plantations were damaged by heavy rains. Many plants are affected by diseases while the treatment is rather costly.

As expected, during the last trading week the market of coffee saw the price consolidating within the 230-245 range (created on Jan 22^nd). The daily volatility is rather high. However, there are no grounds for the price to make a strong movement during the week as no relevant significant news releases are expected. It should be noted that on Friday, Jan 28^th, the price updated the 13-year high once again (the new high is 246,35). There is a seasonal price decline currently seen at the coffee market and caused by the decreased consumption of coffee around the world. That is why no significant price growth is expected in the near future.

Low global reserves, steady demand and uncertainty about supplies are the key factors influencing the coffee market at this point. These factors favor a slow but steady increase in the prices on coffee and make the high-quality coffee less affordable. The global production of coffee in 2011 is expected to be between 133 and 135 m bushels (134.6 in 2010). If there is an increase in the global consumption, the coffee prices may rise in 2011.