On Apr 5th to 6th, we did an informal 2-day trip in Cerrado (MG) and Alta Mogiana (SP), which is in the heart the main #coffee producing regions in Brazil.
The visit resulted in some noteworthy findings, as we saw consistent circumstances in the different areas covered, while also noticing highly congruent views talking to producers and agronomists in these regions.
The overall assessment was of general positive prospects for the 23/24 crop, with signs of impressive recovery against 22/23. We also found evidence of strong potential for 24/25.
The trip was small, covering only 1 thousand hectares of planted area across 6 different farms, so we can consider our findings to be, at best, anecdotal evidence, as it represents a miniscule sample compared to the Brazil crop totality. Still, it does support our general view of the crop, it confirms what we have been hearing from friends in the field and no red flags were raised.
In this article, we share key discoveries, analyze the conditions in the different areas explored, and present the main takeaways of this small tour.
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Overview
Collectively, Cerrado and Alta Mogiana are strong #Arabica producing regions, accounting for approximately 17 to 20% of Brazil's entire coffee output, as per Conab’s data. Hence, the crops surveyed are within a region that represents a meaningful chunk of the Brazil coffee farmland.
Our visit took place ahead of the 23/24 harvest, which is set to kick-off over the first weeks of May. The assessment was of overall health and well-supplied plants pointing to increased volume and yield to this harvest, especially vs last year.
Issues noticed were minor, and mostly related to errors in crop management rather than widespread adversities. In general, weather seems to have had a positive impact, and the present conditions are normal.
With the help of agronomists, we examined the new branches that will shape the 24/25 harvest. Even though it's too early to determine the size of the 24/25 crop, good potential was observed in the new branch growth.
At this point, potential is what shapes initial estimates, and the potential is good. However, we acknowledge that it's crucial that weather remains favorable to ensure that potential is not squandered.
We noted a consensus among farmers regarding prices, and they appear to be content with the current physical prices. This indicates that they are likely to be willing sellers, potentially leading to lower differentials.
Alta Mogiana
Harvest is set to start in the first weeks of May. The crop is thriving, and among plantations that suffered from frost and dryness damage in 2021, many are now beginning to bear fruit for the first time, further bolstering the 23/24 potential.
Due to the extremely favorable volume of rains in nearly half of the farms visited (as well as rust resistant varieties), we suspect that the highly enhanced productivity (expectations of 85 bags per hectare vs last 4Y average of 35) is not a representative example of Brazil.
However, we noticed that the expectations of a sharp rebound in plant yield are shared by numerous producers and agronomists in this region, and well supplied plants add merit to the claims.
We also took note that in his decision-making process, the producer is factoring in the steep storage costs associated with holding coffee (given the high interest rates in Brazil) and the comparatively lower prices for contracts in the distant future, potentially suggesting nearby liquidity and softer diffs.
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Cerrado
Harvest in Cerrado is set to start between the second half of May and the first week of June, while weather is consistent with seasonality, at present.
Our previous visit to these crops in August 2022 provided a benchmark for comparison. Overall, the crops appear to have bounced back, exhibiting improved health and showing no evidence of disease or weather-related damage.
It is worth mentioning that this region in Brazil is known to be highly vulnerable to plague (“bixo mineiro”). According to agronomists, the plague typically arises during the rainy season when the weather is dry. It wasn’t the case this year, thus we saw no notable occurrences of plague.
This further contributed to the enhancement of productivity in these areas. The estimated rise in productivity projected by agronomists and farmers appears to be consistent with the forecasts for Alta Mogiana, falling within the range of 50% to 75% increase versus 22/23.
Furthermore, the plants have large, healthy leaves, and the branches that will bear the 24/25 crop appear to be healthy and contain numerous nodules (approximately 10-13 per branch), suggesting that so far, the 24/25 crop development is on the right track.
Producers also noted that their profit margins are decent at current prices, and that they indeed have less incentive to hold coffee in an inverted market and costly storage. Additionally, fertilizers are very cheap, and availability should be plenty, favoring the next crop.
Outlook
Potential for Brazil’s 23/24 crop will not break any records, but it does look to be a substantial improvement over 22/23 and a very healthy off-year. Hence, the current consensus of 65m bags seems very reasonable. For 24/25, there is good potential for production, but a lot will depend on the weather.
For now, the weather forecasts look supportive for the crop. Brazil is now entering the dry season and so we are watching for the possibility of too much rain. Rain during this phase would be a problem for several reasons.
Lower temperatures combined with rain, add to increased odds of frost occurrences in the Jun-August timeframe. However, even before the frost season, unseasonal precipitation interferes with harvest and drying activities, and also holds back the plants from fixing the roots more deeply. If the roots aren’t able to dig deeper during the dry period, the tree will be more fragile.
To date, the forecasts look reasonable, but we can’t take it for granted. The 24/25 crop may not reach its full potential if the weather deviates significantly from the usual patterns.
Conclusions
The small evidence collected from this visit in Cerrado and Alta Mogiana supports our estimates and what we are hearing about the crop: that the Brazil coffee crop appears to be positive. Now a few good plantations aren’t representative of the crop as a whole by any stretch, but we didn’t see any evidence of major issues either.
Overall, this supports our view of looser fundamentals moving forward, as the Brazil crop heavily factors into our 23/24 balance, which currently shows a small surplus. Keep in mind that our projected surplus is small, and other projections indicate a slight deficit.
Moving forward, much will hinge on climate conditions as they impact the 24/25 crop. If the weather holds, the market will soon be focused on the coming surplus and perhaps a return to a more normal price range. On the other hand, any additional supply shocks would hit a market that is already vulnerable and dealing with short supply.
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