The Brazilian Coffee Market 2014/2015
Brazil is the biggest coffee producer worldwide, and the second greatest consumer, just behind the United States of America. One third of the global coffee production comes from Brazil, and even after two harvests affected by unfavorable weather conditions, the raising demand has provided an improvement on grower´s earnings.
Brazilian coffee growing has traditionally followed a cycle of huge biennial swings, with an “on” year of large production followed by an “off” year of low output for Arabica, the higher quality bean used for espressos and cappuccinos. However, this biennial coffee cycle has been attenuated with the adoption of new technologies.
The 2014/15 was a cycle of expected high production, but drought in some productive regions has led to stock reduction due to the increase of consumption, promoting an increase over international prices in the second semester of 2014. That fact stimulated exports, and surely reflected on the usage of crop protection products. This trend is also expected for 2015/16 season, to be finished in four months.
According to AMIS, growers are used to spend half of the amount of agrochemicals in Robusta varieties rather than Arabica. However, the favorable market scenario has led growers to invest more even in Robusta areas: expenses with crop protection products raised 13% compared to 2013/14 season. Almost 60% of agrochemicals sales for coffee is for fungicides, but insecticides had a greater performance this season. Growers are not only increasing the area sprayed with insecticides, but also using more premium products. No wonder the cost per hectare for pest control rose from 148 to 190 Reais. Leafminer is the most important pest to be controlled, with almost 40% of cropland receiving at least one application of insecticide in order to control the pest. However, borer was the main driver for insecticide market leverage in the 2014/15 season. Borer used to be controlled with organophosphates, but this season diamides were used more, even though they are almost 10 times more expensive than the organophosphates. The diamides are also used against leafminer where they are on average 33% cheaper than competing neonicotinoids.
Around 75% of coffee trees received any kind of treatment against rust: 17% of the area was treated with soil products, which are much more expensive than foliar fungicides. Therefore, growers are making more applications and spending more money at a greater area for rust control, and that surely affected production costs. For the current harvest 2015/16, even with the impact of El Niño in South America, local producers are taking advantage of the better exchange rate in order to invest in production; which is expected to be 24% bigger than last year in Brazil.
International prices of Arabica have started to decline, but growers are still optimistic when it comes to profitability accepting that there shall be a reduction of income due to increasing production costs. However, at the end of the day the balance is positive, which is good news after two years of very low margins.
Market Specialist Kleffmann Group Brazil