Crop Revision – 2017/2018

New York, December 5 th 2017

Dear Customers, Suppliers and Friends,

Since January 25th, when we released our first estimate for the 2017/2018 crop, there has been several occasions that we have questioned ourselves regarding the size of the current crop.

Initially we thought the output was going to be higher, given the visually good conditions of healthy trees and the fruits maturing beautifully just before the harvest.
Then the impression turned completely opposite, coffee exchanging hands among farmers, coops, merchants and exporters during the peak of availability, normally from August through November, was signaling that production figures could be even lower than we first thought.

At the end, we understood what had happened. In November 2017, when the “C” market shot up to US$ 179.55 cts/lb with the Brazilian Real trading at R$ 3.50 and local interest rates at double digits, a significant amount of forward business took place, drying some liquidity at the beginning of the crop as producers were focused on meeting their compromises for coffee sold at much higher prices than it was being practiced at the beginning of the crop.

Additionally, we faced issues with the size of the beans. In our regular conversations and reports we had mentioned the difficulty to source and offer coffees with screen 17/18, up to a point that several buyers had no choice but to adapt some of their qualities to 16/17 screen size instead.

Last, but not least, bored-beans in higher than historical average number contributed to sum up the scenario that confirmed our belief that the 17/18 crop is indeed a 49.4 million bags one, divided between 38.8 million bags of arabica and 10.6 million bags of conilon.
Moving forward and looking at the upcoming crop, 2018/2019, we feel that it is premature to estimate it at this stage. Not so much because of the “late” arrival of rains, which created some anxiety but ended up being just fine, but a lot due to the defoliation of arabica trees that apparently was provoked by prolonged hot temperatures in early fall and sequential cold days in late winter of Brazil.

We must say though that while the potential has diminished somehow for arabica, on the other hand, the conilon crop is looking very promising, with a possibility of an anticipated recovery of this variety that might make the final crop number indeed slightly above 60 million bags.

We think it is more appropriate to take a new road trip and make our regular visits during the month of January to then send our forecast of the 2018/2019 crop.

Transitioning into inventories, we had to adjust our numbers, going back to re-consider previous years’ crop and internal consumption, as the availability of “old” coffee all through the new crop surprised us. In this matter, it seems that the reason that brought these “held-back coffees” into the market was the narrow discount among different qualities and a strong internal demand. Local roasters seeking for alternatives in front of another small conilon crop and exporters running to cover their needs created a tight market as producers could not meet the demand quickly enough. Once again, farmers were focused on delivering new crop beans compromised with forward-deals.

In other words, the price difference among low-grade coffees, conilons, “old-coffee”, good cups and fine cups was the tightest we had experienced in more than 60 years of our history, turning attractive for coffee “collectors” to release their stocks of non-fresh beans.

Therefore, as of Jun 30th, 2017, we believe that carry-over inventories were at 2.635 million bags and if we add the 49.4 million bags produced in this cycle, the total availability was at 52.035 million bags. Assuming an internal consumption of 21 million bags and total exports of 30 million bags from July 2017 to June 2018, we estimate that the carry-over as of June 30th of 2018 will be at 1.035 million bags.


Brazilian Stocks, Production and Consumption

Carry-over stocks as of 30-Jun-2017 …………………………………………………… 2,635,000
Crop 2017/2018 ……………………………………………………………………………… 49,400,000

Total Availability as of 30-Jun-2017 ………………………………………………….. 52,035,000

Exports from July to October …………………………………………………………….. (9,648,341)
Exports from November 2017 to June 2018 ……………………………………….. (20,351,659)
Internal Consumption July 2017 to June 2018 ………………………………….. (21,000,000)

Total Disappearance ……………………………………………………………………….. (51,000,000)

Carry-over stocks as of 30-Jun-2018 …………………………………………………….. 1,035,000


*As a reminder carry-over stocks cut date at the end of June does not mean that overall inventories are as low  since the conilon crop arrives before July with fresh coffee available for usage already in May.

This year, 2017, proved to be a challenging one to the coffee chain as a whole, but at the end we all managed to fare through it, keeping up with the hard work, always aiming to maintain a healthy and honest commercial and friendly relationship with our partners.

We take this opportunity to wish you all Happy Holidays and a Healthy and Prosperous 2018!

Best regards from all of us,

Rodrigo Costa, Sergio Hazan, Renata Hazan and Mauricio Dicunto 

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