Worries over drought, and withholding by Vietnamese sellers of supplies, has driven the discount of robusta coffee to arabica beans below R$100 a bag in Brazil for the first time in 20 months, according to Cepea data.
Arabica coffee prices on Thursday fell to R$469.24 per 60-kilogramme bag, extending above 6% its decline in a week, according to the research institute, which measures its arabica price in Sao Paulo, where it is based.
Values have been undermined by the arrival of rains in Minas Gerais, the top arabica-producing state, which has eased fears that blossoms developed in the ongoing flowering process will abort rather than fix, and turn into cherries to be harvested next year.
However, robusta prices, as measured in Espirito Santo, the top growing state for the variety, rose by R$1.13 per bag to R$370.09 a bag, Cepea said.
The rise took robusta values within R$100 a bag – equivalent to $25.60 per bag, or 19.35 cents per pound – of arabica prices for the first time since February last year.
In percentage terms, the arabica premium, at 26.8%, was at its lowest since January 2014.
‘Well below potential’
The dynamics represent a sharp turnaround from the situation even at the start of last week, when the arabica premium was R$138.82 per bag, or 38.7%.
The premium topped R$200 per bag in early January.
However, while concerns over dryness in Minas Gerais have eased, they have continued to grow in Espirito Santo, with Rabobank noting on Thursday that “there has been very little rainfall in [robusta] areas since the start of the main flowering phase, typically July-August, for the 2016-17 crop.
Although 85% of coffee plantations in these areas are irrigated, “we would expect a crop well below the potential, given that no irrigation system can fully compensate for the lack of rainfall”.
The comments came as the bank forecast London robusta futures outperforming current market expectations, and averaging $1,720 a tonne in the first three months of 2016, while seeing arabica values sticking close to current prices.
‘Extremely high temperatures’
In fact, officials in Espirito Santo, which local reports say is facing its worst drought in 40 years, have in some areas banned irrigation, with producers breaking the curb risking a fine of up to R$2,700 ($691) per day.
Some plantations are restricted to night-time use of irrigation.
According to Brazil-based weather service Somar, some areas of the state received less than 30% of typical October rainfall, raising the risk of cherries being aborted.
While the state is expected to receive some rain near-term, it will not be generous, and will be accompanied by “extremely high” temperatures, which will encourage evaporation of moisture, Somar added.
(Source – http://www.agrimoney.com/news/drought-cuts-robusta-coffee-discount-to-20-month-low-in-brazil—8930.html)