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Price hopes slow Brazilian growers' coffee sales

SATurday - 25/10/2014 14:56
Coffee growers in Brazil are withholding crop sales in expectation of higher prices ahead, despite forecasts for rain for drought-hit plantations, expectations which sent futures tumbling again on Wednesday.

Producers in the Zona de Mata Mineira, in the south east of Minas Gerais, Brazil's top coffee growing state, and in Maogiana have sold less than 20% of this year's coffee harvest, according to research institute Cepea.

And while growers in some other regions have sold a far higher proportion, with farmers in north western Parana having priced 60% of their crop, this may be of a far smaller harvest.

Parana's coffee production, all of arabica beans, has fallen particularly heavily this year, hurt by frost last year as well as a lack of moisture, tumbling 69% to 510m bags, according to the official Conab crop bureau.

Zona de Mata output, for instance, fell by 36% to 3.02m bags.

'Major concerns'

The reluctance to sell, despite prices which this month hit a two-year high of 225.50 cents a pound for New York-traded arabica coffee futures, reflects expectations of further appreciation to come.

"Producers have been limiting sales of the 2014-15 crop, expecting a better market definition and higher prices," Cepea said, after a survey of growers.

"Many players are expecting price rises, based on the possible smaller production because of the dry weather."

Persistent dryness has provoked "major concerns" over blossoming, a stage which requires follow-up rains to ensure flowers set and form the cherries which will be harvested next year.

Even though rains are already returning to Brazil's coffee belt, and are expected to grow particularly next week, while the moisture "might help some crops to recover vitality, it is important to highlight that, in some coffee crops, losses are irreversible", said Cepea, whcih is attached to Sao Paulo University.

"Some producers in southern area in Minas Gerais already estimate a 30% loss in [2015] production."

Prices tumble

However, the comments came as expectations for Brazilian rains extended a correction in coffee futures, which closed down 4.3% at 191.10 cents a pound in New York for December delivery.

That is the weakest finish of the month, and down 15% from the early-month high.

The fall also took the contract back below its 50-day and 75-day moving averages - weak chart signals, although key technically to the contract's prospects is that its 200-day moving average, which it has not closed below since January, and an uptrend line hold in the 183-185 cents a pound area.

Meteorologists at Somar forecast that rains in Minas Gerais will reach 15mm-70mm (0.6-2.8 inches) by Sunday, with rainfall spreading more widely over coffee-growing regions from next week.

Source: Agrimoney

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