What's in a Frost?

The #weather forecast is showing #frost in one of the largest producing areas in #Brazil by Jul 1st, if this materializes then we could see price increases of anywhere from 15c to 95c. For now, the market is largely discounting this risk. There have been a lot of false alarms in years past, so some skepticism is perhaps warranted.

Analysis below.

Let's start with the facts: of the 3 free weather services I use, 3 are showing frost in #Parana, and 2 in #MinasGerais.

Let's break that down.

Parana has steadily lost #coffee #production over the years, because there is greater frost risk there and so plantations have moved North. Frost is still impactful here but it is a small portion of the overall crop.

Minas Gerais has a large portion of coffee grown here so any frost here is a big deal because it puts more of the global #supply at risk.

Coffee Regions of Brazil

The 3 free weather services that I monitor for Frost are the #CMC (Canadian Meteorological Centre), #GFS (US Global Forecast System) and #CPTEC (Brazilian Center for Weather Forecasting and Climate Studies).

CMC - the more sensitive, more likely to predict lower temperatures.

GFS - less sensitive, less likely to predict lower temperatures.

CPTEC - predicts "conditions favorable to frost", but unreliable on its own as indication of frost. Must be confirmed by a temperature prediction.

The GFS skews warmer but shows no risk to the MG region, so the likelihood of major damage there is relatively small (though much greater than a few days ago). However. since CPTEC, GFS, and CMS are all showing frost in Parana, there is a high likelihood of frost there but less quantity at risk.

We refer to July as the #SillySeason because every year around this time the market gets a little nutty about Frosts in Brazil.

This year, that nuttiness is warranted.

The #deficit year this year will be drawing down global stocks to very low levels and the market will be relying on a large #22/23 crop to replenish those stocks. If the #22/23 crop is compromised then we may be in a situation where we need to price ration coffee. If that is the case, it will be a heck of a #bull #coffeemarket.