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Rabobank increases coffee deficit forecast as robusta prospects wither

Rabobank has upped its forecast of next season's global coffee deficit, thanks to dry weather across all the major robusta producing regions.

The bank slightly trimmed its idea of the 2015-16 deficit, with total coffee production undercutting supply by only 0.8m bags, compared to a previous forecast of 1.2m bags.

But for 2016-17, Rabobank forecast demand exceeding supply by 2.2m bags, 1.5m bags more than previously thought.

The shortfall is down to very low production of robusta.

The robusta market for 2016-17 is forecast in defict to the tune of 4.6m bags, 1.3m bags more than previously thought.

Robusta support

Fundamentals continue to support robusta prices," said Rabobank.

"Since our last outlook, the weather in India, Thailand and Brazil's robusta areas has been drier than normal," Rabobank said, "adding we do not expect any major origins to have an excellent crop".

 "Dryness in India (also responsible for a large rally in sugar) should cause a double digit drop from the very good levels seen in the last harvest."

Crops in Thailand and Laos are also going to suffer from dry weather.

Dryness in Brazil

And in Brazil, the world's second ranked grower, dryness has also been a problem.

Rabobank maintained its 2016-17 Brazilian crop forecast, at 52.6m bags, including 12.6m bags of robusta.

But focus is now turning to the 2017-18 crop, the bank said.

"After constantly disappointing rains, the market is wondering how low the next Brazilian robusta crop can be," Rabobank said.

"We believe anything above 16m bags is unlikely, as branch growth has been extremely poor."

"The defining factor will be the rains during the flowering period," warned Rababank.

"Low rainfall in the past few months means that reservoirs are currently low or empty, and as a result, farmers will not have enough water to artificially induce flowering. Thus, we cannot discard the possibility of an even lower robusta crop next season."

Heavy stocks

Still, the tightness of the market will be eased by heavy stocks.

"Spot availability of robusta is high, as the large quantity of certified stocks in Europe are only being drawn down slowly," Rabobank said.

And supplies of arabica look like being ample, which will allow roasters to substitute robusta for arabica in their blends. 
"Recent strong rains in Brazil arabica areas will provide availability of lower beverage quality arabica beans, facilitating the switch from robusta toward arabica," Rabobank said.

Rabobank lifted its forecast Columbian 2016-17 production by 0.4m bags, to 14.4m bags, citing "excellent rainfall that should support the main crop."

Frost risks in Brazil

But there are potential problems in Brazil, where frost risks are emerging.

"At the time of publishing this report there is a small risk of frost in Parana and potentially in other coffee areas, which we are not accounting for," Rabobank warned.

"We believe that in the next couple of months the arabica market is going to be focused on the frost risk probabilities in the Brazilian belt, especially in the case of a La Nina event over the Southern Hemisphere winter, and the conversion ratios from cherries to green beans in Brazil," said Rabobank.
--Adapted from http://www.agrimoney.com/--


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