COST OF A CUPA JOE TO GO UP

FROM BLOOMBERG

Brazil’s Crop to Tip Coffee Market Into Shortage, Volcafe Says
By Isis Almeida

The global coffee market will face a shortage for the first time in three years in 2014-15 as the crop in Brazil, the world’s largest producer, will fall short of its potential, according to Volcafe Ltd.

Bean supplies will probably be about 5 million bags lower than consumption in the 2014-15 season, the coffee unit of commodities trader ED&F Man Holdings Ltd. said in a report e-mailed today. In November, the trader estimated a global surplus of 5.3 million bags. A bag of coffee weighs 132 pounds.

Growers in Brazil will gather 51 million bags in the 2014-15 crop, said Winterthur, Switzerland-based Volcafe. That’s below production potential of 60 million bags and compares with 57.2 million bags in 2013-14 and 56.8 million bags a year earlier, data from the trader showed.

“With a 51 million-bag Brazil crop figure, our 2014-15 statistical balance becomes a deficit of around 5 million bags, coming after two years of statistical surplus in 2012-13 and 2013-14,” Volcafe said in the report.

Arabica coffee futures traded in New York fell 23 percent last year, a third annual decline and the longest slump since 1993 as global bean production outpaced demand. In November, Volcafe forecast excess supplies of 6 million bags for 2013-14 and 7.4 million bags for the previous year. In 2011-12, the trader estimated a shortage of 200,000 bags.

Brazil’s arabica production will come in at 35 million bags in 2014-15 and robusta output at 16 million bags, according to Volcafe. That compares with 40.7 million bags and 16.5 million bags respectively in 2013-14, data from the trader released in November showed. The arabica crop will be smaller due to hard pruning and tree exhaustion, Volcafe said.

Crop Stress

“We have observed a higher-than-expected rate of flower abortion,” Volcafe said. “This disappointing fixation of flowers, in particular in the south of Minas, is due to high productive stress from two large crops in a row, despite textbook weather.” Flowers turn into cherries containing beans.

Hard pruning or skeletonizing of coffee trees will also cut Brazil’s arabica output, Volcafe said. This pruning technique “completely eradicates costs” for producers during the next low-yielding crop and provides a bumper harvest in two years’ time, the trader said. Brazil’s arabica trees will enter the higher-yielding half of a two-year cycle in 2014-15 and a lower-yielding part will follow a year later.

“This year we observed rates of ‘esqueletamento’ of up to 17 percent in the main arabica areas, much higher than normal,” Volcafe said, using the Portuguese word for skeletonizing. “This hard pruning activity is still ongoing, as we observed preparations for more of this cost-saving technique.”

Arabica coffee is grown mainly in Latin America and favored for specialty drinks such as those made by Starbucks Corp. The robusta variety is grown mainly in Asia and parts of Africa and is used to make instant coffee and espresso. While the 2014-15 season starts in Brazil in July, it begins in October in most other producing countries.