Brazil Cecafe exports came in sharply down last month at 3.57 million bags, which is nearly a 20% decrease from the month prior. Is this indicative of diminished supply or merely a fluke in the transit system from the largest volume producer of coffee in the world?
Our view is that this drop in exports is primarily due to delays in ports and this port congestion seems to be resolving, however the broader questions of what is the availability of Brazilian coffee, and the impact on the coffee market is more complicated.
In this article, we will examine the most recent numbers from the Cecafe report in context, look at the delays in port and how it has reduced availability for exports, and discuss our projections for Brazilian exports and availability going forward. Finally we will discuss the implications for coffee prices.
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First, let’s look at the latest numbers out of Cecafe. Exports out of Brazil were 3.57 million bags of coffee, which compared to the first half of the year is a significant reduction (19.2%). However, the context is important here and it has major implications for the availability of coffee.
Context
The exports out of Brazil suggest that there is more coffee available than previously thought.
The first 5 months of the year were all well above average, with 4 of those 5 months above 4 million bags. These are very high numbers, rarely seen in the first half of the year, with most seasons showing high 4+ million bag exports only in the second half of the year when a bumper crop is newly harvested.
In general, we can use the exports out of Brazil as a key confirmation for the size of the crop. There are two other important factors that affect the availability, local domestic consumption in Brazil, and existing coffee inventories from prior crops.
The 23/24 crop (which was exported through the first half of 2024) is widely considered a very good but still off-cycle crop. The high exports out of Brazil confirm that this crop was quite good but also cast some doubt on the previous poor crops in 21/22 and 22/23.
The very bad prior two crops would presumably have drawn down inventory levels in Brazil to very low levels. This means that little coffee could have been exported in excess of the current (from prior crop stocks still held in country). Yet the export data for the 23/24 crop year is significantly above (CONFIRM) what was exported in the bumper crop of 20/21.
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All told this suggests that either 21/22 and 22/23 crops were not as bad as previously thought or the 23/24 crop was even better than advertised.
The Drop in Exports
Given that we have seen very high exports out of Brazil and now in June, this number has dropped precipitously, the question remains of whether this is a fluke or a trend.
The initial data suggests that this is merely a fluke, however, there is more to the story here. First let’s look at how it's a fluke, and then at why this may be a trend.
Port line-ups have indicated that there were significant delays in ports during June. This coincided with seasonally heavy exports in Soybeans for example, which compete with coffee for space. In fact, just looking at the seasonal chart we often see declines in June so it was not unexpected to see the numbers decline.
Moreover, it may not be so much a decline in June exports as it may have been exceptionally heavy exports in Jan – May. There was a winning combination of high futures prices (good for farmers) and low differential prices (good for roasters), this likely spurred exports out of Brazil during those months. By contrast, Brazil diffs spiked in June which likely hurt demand for Brazilian coffee.
Going Forward
Going forward we need to ask not whether or not this trend of declining exports will continue.
The fact that port congestion and line-ups is improving suggests that we will see exports pick up going forward. Typical delays out of Santos, the key coffee exporting port in Brazil are about 5 days, but these were as high as 16 days in June. They have since declined to closer to 10. We send projections on export figures to our premium clients, and most recently we have sent initial projections for July that suggest a small improvement over June.
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However, the other key factor here is the availability of coffee going forward. 24/25 crop, currently in the later stages of the harvest, was initially expected to be a very strong crop that could be a record size. Our farmer survey from earlier this year showed that farmers were extremely optimistic on the size of the crop.
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However, as the harvest has come in, there have been significant reports about smaller bean sizes, and especially notes of very few large beans. This was one of the key drivers of the price spike in differentials.
Our latest farmer survey (available to our premium clients) actually quantifies this reduction in expectations for the 24/25 crop quite explicitly.
So, now what happens going forward depends largely on your view of the current crop and your view of stock levels. If it is true that the 24/25 crop is poor, with smaller bean sizes and smaller overall quantity, and if it is true that stocks have been reduced to very low levels, then the exports will necessarily be low and declining in the second half of 2024, even if prices remain high.
However, if stocks are better than initially thought, or if the reduction in the 24/25 crop is not as bad as feared, then the high prices will almost certainly draw out significant amounts of coffee from Brazil.
We have our view on which of these scenarios will play out in the next six months, but the answer to that question will determine whether coffee rallies to new highs and approaches $3, or whether this bull market and the inversion is finally coming to a close.
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