Brazil Seen Reaping Record Coffee Harvest for an Off-Year

Coffee growers in Brazil, the world’s largest producer, will harvest a record crop for a season in which trees enter the lower-yielding half of the cycle, according to Volcafe, a unit of ED&F Man Holdings Ltd.

Production will be 55.2 million bags in the 2013-14 season, the Winterthur, Switzerland-based trader said in a quarterly report e-mailed today. While down from 56.8 million bags in 2012-13, it would be the biggest harvest for an off-cycle year, according to Volcafe data. Brazil produces a bigger crop in one year followed by a smaller one the next. The next season in the South American nation starts in July, according to the U.S. Department of Agriculture. A bag of coffee weighs 132 pounds.

“The normal on/off-cycle fluctuation in the last 10 years has been between 20 percent and 40 percent,” Volcafe said. “This year the off-cycle represents just a 3 percent drop.”

Coffee exports from Brazil may rise to 33 million to 34 million bags in 2013-14 as production is set to drop in other Latin American nations, according to the report. Shipments will be 31 million bags in the current season, resulting in the highest carryover stockpiles in a decade, Volcafe estimates.

Production in Mexico and Central America will be 17.2 million bags in 2012-13, down 1.2 million bags from the previous year as leaf rust, a disease that affects foliage, cuts output, the trader said. For 2013-14, production will be down to 14.6 million bags. The season there usually starts in October.

Rust’s Grip

“We had been positive on the production trends in Central America, and in Honduras in particular,” Volcafe said. “The latest field surveys tell us, however, that rust has got a strong foothold across swathes of coffee areas, due to a lack of treatment, ultimately because of economics.”

Arabica coffee fell 37 percent last year, the most in more than a decade, partly because of a larger crop in Brazil and rising stockpiles. The commodity was the worst performer in the Standard & Poor’s GSCI gauge of 24 raw materials. The beans traded on ICE Futures U.S. in New York have lost another 1.4 percent so far in 2013.

“In smallholdings, where yields are 10 bags per hectare or lower, when arabica is trading at low prices, those farmers are not spending money on fertilizer to strengthen their trees, or on disease treatments, when rust first strikes,” Volcafe said.

Honduras Production

Output in Honduras, Central America’s biggest producer, will be 5.1 million bags in 2012-13, down from 5.7 million bags a year earlier, the trader estimated. Output will slide further to 4 million bags in 2013-14. Growers in second-ranking Guatemala will gather 3.5 million bags in 2012-13, down from 3.6 million bags a year earlier, according to the report. Output in 2013-14 will decline to 2.8 million bags.

Coffee production in Vietnam, the world’s largest producer of the robusta variety used in instant drinks and espresso, will be 26.5 million bags in the 2012-13 season, down from a record 28 million bags a year earlier, Volcafe estimates. In Indonesia, the third-biggest robusta grower, output in the 2013-14 season will be 10.5 million bags, down from 11.5 million bags a year earlier and up from 6.2 million bags in 2011-12, the trader said. While the 2012-13 season in Vietnam started in October, Indonesia will begin harvesting the 2013-14 crop in April.

“These three biggest producers, Brazil, Vietnam and Indonesia, are providing more than enough coffee for the world, even with lower production in Latin America,” Volcafe said.

Global coffee supplies will be 5.4 million bags bigger than demand in 2012-13, mainly due to excess supplies from Brazil, according to Volcafe. The coffee market may see a shortage of 600,000 bags in 2013-14, the trader estimated.

Before it's here, it's on the Bloomberg Terminal.