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Raining on the Bullish Parade

The #Brazil 22/23 #coffee crop has been through a lot this year already, but over the weekend we finally had some good news for the farmer: a healthy rainfall. There has been substantial damage to the crop already from the #frosts and the #drought so there is question here as to what the rains mean.

My view is that the rains portend a strong recovery in the #Arabica crop and will bring in a lot of Brazilian selling to the #coffeemarket.

Brazilian Rains Raining on Coffee Market's Parade

What's the Context

There was a substantial rainfall deficit both in 2020 (affecting 2021 crop) and in 2021 (affecting 2022 crop). Back in April I wrote about how the heat damage during the flowering period and the ensuing drought would affect the 2021 crop, and for the last several months we have been talking about the dryness affecting the 2022 crop.

Note that whenever we look at precipitation in the context of coffee, we want to focus on the 90-day cumulative. This is because coffee is a tree crop with a longer life-cycle so its health is affected by longer cycles of precipitation. You can see in the below charts that the coffee regions (outlined in white) were running between 20 - 60% of normal through October 2nd.

If anything, this actually understates the problem though because as noted above, the drought has been more persistent than just the last 90 days.

Recent Rains and Forecast

However, this weekend we saw a decent return of rains across the Arabica regions in Brazil. Moreover, the forecast is improving. Speedwell's Minas Gerais Index and Arabica North Index are both projected to EXCEED the 90 day cumulative climatology by October 19th.

Moreover, the long-term forecast is showing WETTER than standard climatology, and this is during the wet season. If the forecast comes to pass as predicted, we are talking about a strong flowering with strong follow-on rains to support the new flowering.

What we Expect to Happen

After a particularly stressful period for the plant, like we have seen with #frost and #drought, the plant will often have a particularly abundant flowering. This is almost a reflex mechanism where the plant senses it is in danger and so tries to propagate more (or so I am told).

If there are sufficient follow-on rains then we could see a strong survival rate of flowers turning into beans. This is especially true if farmers see a good price in the C market and take particularly good care of their trees.

Now keep in mind, that I'm talking about the best of a bad situation here. There was damage done to the tree and to the 2022 crop potential from the frost and from the drought that CANNOT be recovered.

That said, we seem to be on track for as good of a recovery as could be hoped for, given the damage that we already have.

Two things that we will want to watch out for is 1) the amount of flowering and 2) the percentage of flowers that spawn cherries. I've been told that the quantity of flowers may be misleading, that we might see many flowers but low rate of transition into beans. If that is the case than my optimism may be ill-founded.

One final chart that I will leave you with is a chart of coffee prices in BRL terms.

Right now the Brazilian farmer is getting twice as much for their coffee as they did when coffee was $3 back in 2010, or when coffee was trading at $2.25 in 2014.

My view is that if they have any coffee this year, they will sell it, and they will sell it in size.

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