Brazil Coffee: A Little Dry, or Very Dry?

For the past several weeks and months we have been hearing about #drought and #dryness in Brazil (from our friends like analysts Judy Ganes, Mike Nugent, the Analyst-Trader, and President of MJ Nugent Co. , and others). How dry is it, and is it a source of concern?

My view is that it is not a strong concern now, but that there is potential for a bigger problem and I highlight what that is and why in the paragraphs that follow.

Background:

21/22 is a significant #deficit year for the #coffee #supply and #demand #balancesheet, and the reason that the market has largely been ok with this fact is because of the large 20/21 crop and the expected large 22/23 crop.

The #Brazil #frosts this year have been discussed ad nauseum and I won't rehash it here, except to say that the damage from the #frost last month has made the large 22/23 crop a lot less large. It has also put the plants that have survived into a weakened state. Thus any further risks to that crop from dryness are going to be significantly magnified. That is what is at stake here.

In the recent past it most definitely HAS BEEN DRY in Brazil--we had a water warning issued back in May of 2021 and #Bolsonaro and others talking about the worst drought in 20+ years.

However, there was some rains since then and the concern with drought gave way to frost risk in July although the precipitation remained below climatology.

In fact, those same dry conditions contributed to the increased risk of frost, and we all saw the consequences of that increased risk.

The Present:

While we are still below normal climatology in terms of #precipitation, it is the dry season and so it is not a disaster that the weather has been dry lately. During this period, the plant is in a biological sense prepared for dryness so the fact that it is a bit drier than normal is not a huge concern.

However, in addition to the plant being stressed from dryness, much of the region has also suffered some frost damage. So moisture will be essential for the plants to recover properly.

The above charts are from Speedwell, a subscription weather service that I have used for many years

The Future:

I would conclude that the future is mixed with a #bullish bias.

For better or for worse, it is difficult to say that there is definitively a major problem, but we can say that the risk is there and it is elevated. Here is how it breaks down.

In the very short term, there is little rainfall for the next two weeks and we are well below climatology. However, moving a little further out we see rainfall anticipated in second half of August as we move closer to the rainy season which will most definitely help the plants and alleviate some of the stress that they have endured to this point.

Moving forward into the start of the rainy season Sep and October look good with rainfall anticipated better than average. However, from there conditions worsen with the long term forecasts showing drier than average Nov, Dec and Jan.

In some ways this is the worst possible scenario. If the plant recovers as best it can in Sep and Oct and invests its newfound health and resources into blooms on the branches, then the worst thing that can happen is to then hit the plant with heat and dryness that destroy the #flowering.

Monthly Long Term Forecasts

The monthly long term #forecasts are a notoriously fickle and unreliable forecast. So we can't take these precipitation anomalies as gospel. We can, however, combine them with other predictive tools to establish some level of confidence in the general conditions.

One of those tools is the #ENSO Index which predicts #ElNiño conditions. Current ENSO projections are showing increased likelihood of a #LaNiña event this year (the same event that happened last year and contributed to last years dry conditions).

That combined with the long term anomalies and current stress on the plant are significant risks for the 22/23 crop. We will continue to monitor, but its a risk that the entire coffee market should be aware of.