Coffee Insiders’ Update (07/Oct)

Are the officially reported numbers about losses of coffee crop in Central & South America as high as the reality could be?

Our partners inside the cash coffee industry located in Caldas, Colombia, recently reported us that according to internal surveys among coffee growers along the country, in most of Colombia’s coffee growing departments such as Caldas, Antioquia, Risaralda, Quindío and Valle del Cauca, despite some recent rainfalls, an important percentage of the October-November coffee crop was already damaged due to the summer heat wave experienced between July-August.

That may not be a fresh new.

In fact, by mid September, the Federation National Coffee Growers (FNC) reported that “due to the effects of El Niño on Colombian coffee, it was evident that 90,000 productive hectares, equivalent to 18% of the coffee area, have been affected to some degree.”

The key point is:

Our partners found in their survey that, according to their internal analysis of the coffee crop, coffee farmers lost an average of 25%-30% of their October-November crop, which is the largest one in the year. There are coffee farms that lost even 40% of their crop.

Those numbers differ vastly from those reported by FNC. Why? The answer seems simple: they don’t want a much higher coffee price as they are one of the largest coffee supermarkets. Coffee shortages is not a good new to report…

The issue becomes bigger when the numbers about losses of crop coming from Central America are also high, according to our partners’ survey. In Brazil, “according to the latest review from the National Supply Company (CONAB), Brazil’s 2015-2016 harvest is pegged at 42.15 million bags. This is 4.8% (or 2.1 million bags) lower than the 44.28 million bags forecast in the May crop survey from Conab.”
In our opinion, that percentage seems still low compared with the potential reality in Colombia…

We don’t know if the numbers above about losses of crop in Colombia are going to be officialy reported. But what we do know is that it’s going to be hard to dissimulate. If that happens, it could be by mid October-early November. That coincides with a seasonal strenght of the “C” futures contract by 20 Oct – 20 Dec.

Long position in coffee by year ending?

It could be an interesting risk-reward relation trade. Adding this to the actual high correlation with Arabica Futures and Brazilian Real, which recently hit a new all-time low and Brazil’s central bank promising to support the currency, which has been rapidly devaluated; thus, the possibility of a short term bounce can not be ruled out.

Andrés Agredo,
President & Founder

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