Soy void begins this Saturday (08) in Mato Grosso
Period prohibits any vegetative stage of soybeans, aiming to reduce the occurrence of Asian rust
The market is currently tracking three key points in terms of fundamentals: Vietnam's 24/25 crop development, Brazil's 24/25 crop harvest, and the initial view of the USDA's 24/25 crop estimates. In a report, Hedgepoint Global Markets addresses crop estimates and price dynamics in the international coffee market.
“Starting with the first point, rainfall levels in Vietnam's Central Highlands remain below average despite the increase seen in May. Currently, accumulated precipitation is 72% of the average levels expected for the first week of June. During May, soil moisture in the region also recovered but remained below average.
Running the model that correlates rainfall levels and annual productivity variation, the projection has changed since April - previously, the model suggested a -2% variation in productivity. Currently, the model suggests a variation of -1,05%. In numbers, this suggests a total production of 27,45M scs, against 27,18M scs seen in April”, says Natália Gandolphi, Coffee analyst at Hedgepoint.
Consequently, the recovery helped support production levels for the 24/25 crop year in Vietnam - however, not enough to show an increase over the 23/24 crop year figures, which were 27,7M scs.
“Secondly, the harvest in Brazil also advanced. Currently, Safras & Mercado reports that 23% of the Arabica harvest is complete, in line with the five-year average (20%). Conilon shows a similar trend (42% vs. 41% of the historical average)”, he says.
According to Natália, despite the increase in the pace of harvesting, the size of the sieve has not improved significantly compared to when work began - which raises the possibility of a reduction in production. “Still, with total harvest at 21%, it is too early to determine the size of the potential reduction,” she notes.
“These two facts, in both Vietnam and Brazil, contrast with the USDA's preliminary estimates for the 24/25 harvest in both countries. The agency revised Vietnam's production in the 23/24 harvest from 27,5M scs to 29,1M scs in its new reports, and points to a negligible reduction in 24/25: 29,0M scs. As for Brazil, the agency did not change its estimate for 23/24 and suggests an increase of 3,6M scs in 24/25, especially for arabica - reaching 69,9M scs”, he highlights.
In total, with data from other countries, Latin American production has been revised upwards by 1,58M scs, and shows an increase of 2,7M scs in 24/25 compared to previously consolidated figures, and an increase of 4,3M scs considering the new reports.
Considering Asian countries, the subtotal for 23/24 was revised downwards, by 340 thousand bags, with a variation in 24/25 in relation to the previously consolidated figures of 2,72M scs, and +3M scs considering the new results.
“In total, the new USDA numbers for the 23/24 and 24/25 harvests suggest that the balance will be tighter in 23/24, with a total reduction of 1,9M scs for the countries released so far”, he points out.
On the other hand, the agency expects an increase of 7,3M scs for 24/25, when compared to the new results, or 5,44M scs compared to the previously consolidated figures for 23/24.
In summary, overall, the new USDA estimates for the 23/24 and 24/25 harvests suggest that the balance will be tighter in 23/24, with a total reduction of 1,9 million bags for the countries released so far . On the other hand, the agency expects an increase of 7,3 million bags for 24/25, when compared to the new results, or 5,44 million bags compared to the previously consolidated figures for 23/24.
Despite this more positive outlook from the USDA, especially in relation to the Vietnam and Brazil figures, the spread curve has a steeper slope for long-term contracts compared to short-term ones.
While it is too early to determine the actual impact on both crops, as development is still ongoing in Vietnam and harvesting is in progress in Brazil, the indicators are not especially optimistic.
On the other hand, prices are subject to macroeconomic fluctuations: US labor market data offset the weekly price increase at the close of 07/06, showing higher than expected payroll results.
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