Brazil Drought Damage May Cut High-End Coffee Crop for Two Years

A drought “disaster” that’s eroding prospects for Brazil’s next crop of beans preferred by major coffee chains may carry over to the following season, a leading analyst said after a tour of farms in the world’s top grower and exporter.

“I was floored by the conditions at some of these farms,” Judy Ganes, the president of J. Ganes Consulting, said in a telephone interview after examining crops in Minas Gerais, Brazil’s top state grower. “I have never, ever seen anything like this,” said the consultant, who has covered the industry for more than three decades.

Brazil’s Agriculture Ministry said last month that some estimates provided to the government indicate 2021 losses of 15% to 40% from 2019, the previous lower-yielding half of a biennial cycle. Ecom Trading and Volcafe, two major traders, projected declines of a third from a year earlier. Arabica-coffee futures have jumped 34% from the 2020 low of 94.55 cents a pound on June 15 following the dry weather.

“So far, I’ve just seen skeletal trees or trees that look lush from afar and then you get close to them, and there’s no coffee,” Ganes said after visiting municipalities including Varginha, Alfenas and Tres Pontas. “You had a first flowering failed, and this is the result.”

Minas Gerais accounts for 70% of Brazil production of arabica, the variety favored by Starbucks Corp.

Brazil Drought Damage May Cut High-End Coffee Crop for Two Years

Some coffee beans have turned black, and concerns escalated for cherries that were set may abort or drop from trees, Ganes said from the Hotel Vale do Cafe in the municipality of Machado. Vegetative growth for the 2022 crop is running behind, and “rain in the past two months will only help avoid another disaster,” she said.

Ganes won’t make a production estimate until the tour ends next week. “Everything so far comes down very low. I don’t think the market has factored it into prices because it is a developing situation,” while the industry faces demand woes from the restaurant industry battered by the coronavirus outbreak, she said during a webinar.

“If there’s going to be a crop next year, it’s going to come from young trees, that are stronger and were able to withstand the drought, and from irrigated farms,” Ganes said.

The tour ran under strict safety precautions because of the pandemic.

On Thursday, arabica coffee for March delivery closed unchanged at $1.266. On Wednesday, the price reached $1.286, the highest for a most-active contract in 13 weeks.

©2020 Bloomberg L.P.

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