Market Talks: Outlook for Brazilian coffee exports

Author Argus

Agribusiness continues to boost the Brazilian trade balance amid the pandemic and, in addition to soy, coffee has also seen a jump in export volumes.

What is behind this performance and what is the commercial outlook for Brazilian coffee in both domestic and international markets? In this week's episode of Market Talks, Camila Dias, Argus Brazil Bureau Chief, and Kauanna Navarro, agriculture and fertilizer reporter, analyze the outlook for Brazil’s next coffee crop.

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Transcript

Camila: Hello and welcome to ‘Market Talks’- a series of weekly podcasts brought to you by Argus covering the main events impacting the commodities and energy sectors in Brazil and worldwide. My name is Camila Dias, Argus Brazil Bureau Chief. In today's episode, I talk to Kauanna Navarro, a grain and fertilizer reporter at Argus, about the impacts of the Covid-19 pandemic on Brazilian coffee exports. Welcome, Kauanna.

Kauanna: Thank you, Camila. It is a pleasure to be here.

Camila: The pandemic has led to a global economic crisis, but Brazilian agribusiness has benefited. Soy exports should hit a new record, and it is not just soy shipments that have increased during this pandemic. What other areas of agribusiness have been doing well during the coronavirus crisis, Kauanna?

Kauanna: Brazilian coffee has become more popular abroad. The weaker Brazilian real has made the commodity more competitive abroad. Brazilian coffee export revenue increased by about 28pc in January-June compared to the same period in 2019. While, coffee sales volumes increased by just 0.3pc in the first half of 2020, according to data from Brazilian Council Exporters of Coffee (Cecafé). Belgium, Russia, Turkey, Spain, and Mexico are countries that are importing more Brazilian coffee this year.

Camila: But is this increase just due to the weaker real or is there something else helping in this?

Kauanna: Brazilian coffee farmers have benefited from a decline in production in Vietnam, where lower rainfall and higher-than-average temperatures reduced coffee production. The USDA forecasts Vietnam's marketing year 2020-21 coffee production at 30.2mn 60kg bags, down by 3.5pc from the previous year.

Brazil's robusta coffee production — which is considered a lower-quality grain than arabica — filled the gap in the global market left by Vietnam, with robusta grain exports up by 30pc in January-June, according to Cecafé data. Total exports, which includes industrialized coffee and arabica production, decreased by 4pc in the same period.

Camila: And who buys the robusta grain?

Kauanna: Robusta grain coffee is usually used in certain blends in the US and other small niche markets, but it has recently found new markets, including first-time importers such as Spain, Russia and some African countries.

Camila: Vietnam had low productivity this market year, and how is Brazilian production doing? Do we have good forecast for the next season?

Kauanna: Brazil produced 59.3mn bags of coffee through June 2020, according to the USDA. For the next season the forecast is for a record of 67.9mn bags. Favorable weather conditions have generally prevailed in most Brazilian coffee regions, supporting fruit setting, development and filling, thus resulting in higher likely yields.

Camila: Will the exchange rate movement continue to be positive for Brazilian exports?

Kauanna: Yes, the exports should continue to be helped by Brazilian currency depreciation. Since January, the Brazilian real fell by 44pc against the US dollar, and domestic macroeconomic problems caused by the coronavirus pandemic should continue to influence the currency.

But there are concerns about US demand. The US was the biggest Brazilian coffee buyer through June, with almost 20pc of market share. The economic situation in the US may lead to reduced coffee purchases, though.

Camila: And until the end of the year? Should something change with the projection of a sharp decline in Brazilian GDP?

Kauanna: Prices in the domestic market remained steady this year as demand for exports strengthened. Brazil's domestic coffee consumption for 2020-21 is expected to be unchanged at 23.5mn bags — 22.4mn bags of roast/ground and 1.2mn bags of soluble coffee — compared to the previous market year. Despite the projected decrease in Brazil’s GDP for 2020, coffee has high penetration in Brazilian households, with about 97pc of Brazilian households drinking coffee regularly, according to the Brazilian Coffee Industry Association (Abic). The association expects the increase in consumption in the Brazilian households should offset the losses in "out of home" consumption with the temporary closure of Brazilian coffee shops, hotels, bars and restaurants imposed by the pandemic.

Camila: Thank you very much, Kauanna. If you want to know more about the pandemic's impacts on the global commodities market, visit our dedicated microsite on the subject at www.argusmedia.com/coronavirus. We will be back soon with another edition of Market Talks. See you later!

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