Record coffee harvest keeps supply on the foreign market high and prices falling

By Igor Martins Garcia, market analyst at COSTDRIVERS

The latest publication of IBGE's Agricultural Production Statistics, from February, points out that the 2019 coffee harvest is expected to be smaller than the previous harvest. The fact is due to a negative bienniality, that is, a natural process of recovery of planting between harvests, which falls after a year of high productivity. But still, the expected volume is high compared to previous low years.

The price of coffee has been following a downward trend since 2017 and, since the beginning of 2019, this movement has intensified, mainly due to the high Brazilian and global supply. In 2018, the Brazilian harvest reached record levels, despite the addition of a strong export market and domestic demand, resulting in excess supply.

Grain exports grew vigorously last year and should maintain this trend, taking advantage of the low international exchange rate and the exchange rate favoring the North American currency.

Brazil is the largest coffee exporter on the world market, accounting for a third of production and is the second largest consumer market for the drink.

According to the Ministry of Agriculture, Livestock and Supply, Brazilian coffee farming is among the most demanding in the world, especially in relation to environmental and health issues.

Sources point out that future coffee prices on the New York Stock Exchange were lower than coffee production costs, at a historic low in prices, leading Brazilian producers to sell the beans at a loss.

In addition to the surplus supply, the existence of stocks in American ports and the pressure exerted on the stock market by American investment funds to maintain lower levels also stand out.

Brazilian producers point to high production costs, at the same time that prices are at a low level, making the financial results of grain producers difficult, even with large quantities sold.

A recent example was that of the producer Terra Forte, one of the largest in the country, which filed for judicial recovery to renegotiate its debts. The company began an expansion process, estimating the value of a bag at R$550,00, but the price today is R$350,00.

A recent publication by the International Coffee Organization highlights that this worrying situation is perceived in the same way by producers around the world, who are already organizing themselves looking for a way to reverse losses.

The next World Coffee Producers Forum will take place in July in São Paulo and, on this occasion, experts will discuss measures that can present solutions to the coffee market, as the current perspective could only be modified with some new fact.