Why Brazil's Arabica Coffee Faces a Risky New Crop Season

Brazil's coffee exports are performing strongly, but drought and a dengue fever outbreak are clouding the coming crop season. Minas Gerais, the main Arabica region and about 30% of Brazil's Arabica output, received only 6.6 millimeters of rain in a recent period, just 16% of its historical average. Dengue cases have passed 1.8 million, pushing several producing regions into public health emergencies.

Sales for the 2023/24 season are moving well, with 84% of the crop sold and Arabica at 80%, helped by reduced Robusta supply from Vietnam and Indonesia and Red Sea shipping issues. Pre-sales for 2024/25 sit at only 11%, far below last year, as farmers hold back. La Niña odds of 62% add frost risk, and Arabica and Robusta prices have recently risen together.

Recently, Brazil's coffee exports have performed strongly, but extreme weather and a dengue fever outbreak are casting a shadow over the upcoming crop season. Minas Gerais, the main Arabica-producing region, has received only 16% of its historical average rainfall, and drought is threatening production. Meanwhile, dengue fever cases have surged past 1.8 million, with multiple coffee-producing regions entering a public health emergency, which could lead to a shortage of harvest labor. In addition, the probability of La Niña has risen to 62%, potentially bringing frost disasters. Although coffee sales for the 2023/24 season are progressing well, pre-sales for the 2024/25 season are slow, at only 11%, far below the same period last year. Coffee farmers are strongly reluctant to sell, and a wait-and-see atmosphere in the market has intensified. Front Street Coffee reminds enthusiasts to pay attention to developments in producing regions and to view price fluctuations rationally.

According to Nasdaq, Arabica prices had previously declined due to the recovery of production and exports in multiple coffee-producing countries worldwide, while Robusta edged slightly higher. However, prices for both major coffee varieties have recently risen together. The main trigger is the ongoing drought in Brazil, which has caused supply shortages, compounded by the dengue fever outbreak leading farmers to reduce coffee bean transactions.

Brazil's recent rainfall has continued to remain below historical averages. According to data from Brazilian meteorological agency Somar Meteorologia, Minas Gerais accounts for 30% of Brazil's Arabica coffee production, but the region received only 6.6 millimeters of rain over the past period, just 16% of the historical average. The situation remains severe and will affect future production and coffee sales.

Although Brazil has already sold 84% of its 2023/24 coffee crop, roughly in line with last year's pace, with Arabica sales at 80%, market trading is active, though still slightly below last year's 81% for the same period. Robusta sales have reached 91%, higher than last year's 88% for the same period. This is thanks to reduced Robusta production in Vietnam and Indonesia, as well as geopolitical issues along the Red Sea route, which have prompted traders to reduce purchases from Vietnam and Indonesia and turn to Brazilian Robusta. In addition, global coffee demand is growing, especially in China, where Brazil's coffee bean exports to China in January and February 2024 increased by 158.5% year on year.

However, Brazil's 2024/25 coffee pre-sales are progressing slowly, with only 11% of expected production pre-sold so far, far below 25% at the same time last year. The main reason is rising international prices and increasing demand. Some traders consider prices too high, especially for Robusta coffee, making them more cautious in purchasing.

On the other hand, meteorological agencies predict that La Niña may occur in the second half of the year, which has also suppressed Brazil's coffee pre-sales. The U.S. National Weather Service said the probability of La Niña in the second half of the year has risen from 60% to 62%. The return of La Niña could lead to reduced rainfall and colder weather in southeastern Brazil, while increasing rainfall and humidity in the northeast. Cold weather would cause temperatures in coffee-producing areas to plunge, bringing frost disasters and damaging coffee production in the current and future seasons.

In addition, Brazil's domestic dengue fever outbreak is severe. According to data from the Brazilian Ministry of Health's arbovirus monitoring team, so far there have been more than 1.8 million confirmed and suspected dengue cases, a record high. Symptoms include persistent fever, headache, muscle pain, joint pain, and in severe cases can lead to death. A total of 561 deaths from dengue fever have been confirmed, with another 1,020 deaths under investigation. The head of the Ministry of Health's health surveillance office said earlier that Brazil is expected to record 4.2 million confirmed and suspected dengue cases this year.

Due to the sharp rise in dengue cases, eight states and the Federal District across Brazil have declared a public health emergency, including major coffee-producing states such as São Paulo, Minas Gerais, and Espírito Santo. Experts point out that El Niño and climate change-induced hot and rainy weather have created conditions for the breeding of Aedes aegypti mosquitoes, the main vectors of dengue fever. Industry insiders say that as April approaches, the new coffee season will begin, but the dengue outbreak could reduce labor. Although some producing regions use mechanical harvesting, some specialty Arabica regions and estates may be severely affected.

According to the latest report from the Federation of Industries of the State of Minas Gerais in Brazil, due to the rapid growth in the number of dengue infections, Brazil may face economic losses exceeding 20 billion Brazilian reais (about 4 billion U.S. dollars) in 2024. Among these, medical expenses for responding to the dengue outbreak will exceed 5 billion, and industrial production losses may reach 15 billion. These circumstances make coffee farmers in no hurry to sell the coffee beans they hold, hoping to wait and observe future trends before selling, and to ensure their own inventory so that they can still sell coffee beans even if production is affected.

The above content is compiled by CoffeeHunters, a coffee news website.