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Buy the Rumor, Sell the Fact: Coffee Frost Risk in 2021

"Buy the Rumor, Sell the Fact" is a favorite phrase in the coffee community, and it is one that we hear every year around this time of year because it so frequently relevant to #Brazil #coffee #frosts.


Coffee frosts regularly build up excitement because they represent a dramatic threat to supply, and historically have caused some dramatic price movements. In the last 20 years though, they have rarely materialized into the promised disaster.


This year though, the threat was amplified by the existing #deficit. If the #21/22 deficit materializes the way that people are talking about it materializing, then stocks will be very low come next February and the #coffeemarket is counting on a rebound in the Brazil #22/23. This is why any #frost this year would be so catastrophic.


A frost typically damages the new growth at the end of the coffee branch that becomes next year's crop. These green shoots are most vulnerable to the cold and it is where the flowering will occur after the harvest. Any damage from a frost this winter will therefor impact the size of the 22/23 crop, right when the world needs it most!


How likely are we to see a big frost this year? My default number is a 15% chance. I'm basing this off the historical occurrences of frost and reduced it to account for the move north in the Coffee plantings.


The Brazil winter is from Jun to August, so we have made it through part of the season and through our first frost warning. That doesn't mean the risk is over.


As we progress through the season, I gradually reduce the overall risk in my valuation until we zero out. We aren't there yet though, and although this frost scare is behind us the season still has a bit more to go.

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