Brazil experienced a relatively early #coffee flowering this year, with some reports saying that up to 50% (50!?! Really? 🤨) of the crop has bloomed already. Now, with hot and dry weather on the horizon, the potential for this next bumper crop could become compromised.
What’s hype and what are the facts? In this article, we analyze the current weather situation and forecasts in Brazil, shedding light on the facts on the ground and what are the concerns.
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Overview
Brazil is at the blooming phase, which is a key period to determine crop potential. Typically, flowering occurs multiple times with the bulk of flowering occurring from 2nd half of September to 1st half of October, but it came earlier than usual this year. Now there’s crucial need of follow-on rains for the germinated blooms to fix and turn into healthy beans.
The strong El Nino this year coupled with weather teleconnections gave early warning that Brazil will likely be hotter and drier than usual in the regions encompassing the coffee areas over the next few months.
Now, precipitation forecasts are confirming these early warnings as they suggest dry weather from Sep to Dec and on top of that, there’s unusually intense heat. If this lack of rain persists in the forecasts, productive potential could be cut for the next crop, especially in this high temperature environment.
Taken together, forecasts suggest challenges for the next Brazil crop, however, much of this fear rather than fact at this point. Even so, the risk profile of the 24/25 global coffee supply has changed and the futures market is rallying and triggering short covering on these weather concerns.
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Why There’s a Concern
Brazil is by far the world’s largest coffee producer, around 35% of global coffee comes from this origin, which produces a massive 50-70m bags each year. Hence, problems in Brazil, can affect the coffee market as a whole. We can look back to 2021 for a recent example, when episodes of frost and dryness in Brazil propelled KC prices into a 2-year bull market, which peaked at an impressive 250c.
Additionally, the world is currently at a period of low stocks, since (among other factors) Brazil comes from lower crops in 21/22 and 22/23. It’s only now that Brazil is recovering its productive potential, with a higher crop in 23/24 and a high bar set for 24/25, with otherwise healthy plants ready to bounce back into a bumper crop.
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The 24/25 crop is the one that will be affected if there are problems, and although the crop is still 1 year out, it is at a crucial phase of development, since it’s during flowering and fixation when the productive potential is set. Several regions have already experienced flowering and the crops need rain for fixation or to stimulate flowering in the areas that are yet to bloom.
Unfortunately, we’re now lacking follow-on rains and forecasts are dry across the board with excessive heat affecting the producing regions.
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An offsetting factor to bad weather is the fact that there’s typically 4 flowerings per year with the early and late flowerings usually being the smallest ones in size. Additionally, plants can rely on soil moisture from their root system in periods of drought. However, there are constraints to how much this can assist if adverse weather is persistent.
Ultimately, insufficient moisture during blooming can produce a range of problems. For example, fewer cherries may be formed from floral buds due to poor setting, and plants can suffer from abortion and/or higher chumbinho losses, which translates into lower yields. There’s also the chance that beans become underdeveloped and therefore smaller, adding to reduced yields. Moreover, uneven flowering leads to uneven maturation of the crop.
In addition to those, also note that coffee is a tree crop, meaning that the timeline is longer. Prolonged or severe dryness can also have a lasting impact on the coffee plants, potentially affecting their health and productivity in subsequent growing seasons, as it was the case in the 2021 dryness episode.
Beyond the alarm from dry weather, there’s also a severe heat wave in Brazil, which is not just visible in the forecasts we track, but it's also a widely reported news here in Brazil which is adding to the fear among farmers. At this time of the year, if it does not rain and with high average temperatures, the “bixomineiro” pest (pest that feeds on coffee leaves) can become uncontrollable.
During winter, the low night temp contains the pest and in summer, it’s the rains that do the job. When one of these factors is out of control there is no agricultural defensive that makes for proper containment. These pests are an issue especially in Cerrado, but also in other important areas. On top of the Bixo Mineiro, note that prolonged high temps can stress the plants and negatively affect the yield.
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By now, there are several indications pointing out that the temperatures are exceeding the averages by a wide margin. Brazil’s National Institute of Meteorology (INMET) has just issued a heat wave warning. This warning is issued when temperatures are over 5°C (41°F) above avg for over 5 days. They characterize this as a red warning, interpreted as one of significant risk.
Their warning encompasses some of the key producing regions, such as Cerrado, Alta Mogiana, South Minas and also Paraná, which account for 45% of total BR production, when put together (per Conab’s data). Furthermore, INMET is also pointing out low humidity in some of these areas, which is somewhat congruent with what the European 14-day precipitation forecast shows.
Why Adverse Weather Might be Overhyped
Prior to becoming overly pessimistic or bullish, we need to acknowledge that the 24/25 crop is starting from a higher expectation, with several people comparing its prospects to the record crop in 20/21. Whether or not these 2 crops are comparable, the high starting point suggests that there’s room to downgrade the crop and still be a sizable one.
Moreover, there’s typically multiple flowerings, and so if not all of them are damaged, it may be less of a problem. Looking at past years, there have been years of damaged flowering and poor setting from lack of follow-on rains in which Brazil still ended up producing quite a lot of coffee. Finally, we need to remember that forecasts are still uncertain at this point, and they can rapidly change, so there is room for them to improve.
Conclusions
The market is becoming bullish with crop risk from dryness and high temperatures. If forecasts maintain this trend, this will be a problem to crop development from both lack of rain and increased pests. There’s a certain redundancy with different sources signaling dryness and high temps, and so thus far it looks like there’s a decent chance of the crop being affected.
However, Brazil is not necessarily on the verge of a crop disaster, and so we need to approach the matter with a grain of salt. What we can say for now is that things are indeed trending away from ideal and becoming more bullish.
In our next blog for premium clients, we will do an analysis on the areas affected and what the potential impact will be on crop & prices, we will apply quantitative methodology to show hard numbers of impacts
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