February 28, 2014
Rain in Brazil may be too late…
Forecast rain may pour cold water on Brazil’s Carnival festivities in the next few days, but the country’s farmers are looking forward to getting a drenching.
After a January that ranked as one of the hottest and driest on record, heavy rains expected across the south of the country will be a welcome relief for the region’s farmers.
Panic has spread across global agricultural markets over the past few weeks as Brazil’s January drought ravaged crops in the country that is the world’s top producer of coffee, sugar and orange juice, and a big supplier of grains such as soyabeans and corn.
Coffee has been one of the leading gainers in commodities markets this year as fears have focused on potential losses of up to 15 per cent of the crop. The benchmark coffee price in New York has surged almost 60 per cent since the start of the year, hitting a 16 month high of $1.8125 a pound earlier this week.
“January in Brazil is meant to be one of the wettest months of our summer and everyone who planted crops kept waiting for those big rainstorms to come but they just never did,” says Graziella Gonçalves, a meteorologist at Somar in São Paulo.
A stubborn area of high pressure in the centre-south in January not only deprived the country’s most fertile regions of rainfall but it also drove up temperatures to an all-time high in states such as São Paulo. While it will only be possible to calculate the damage to Brazil’s coffee crop by harvesting it, many beans are likely to be smaller than normal or with thicker skins affecting yields. Others simply will not have developed at all.
“It’s a bleak scenario,” says Carlos Brando, director of P&A International, the coffee consultancy.
The Brazilian coffee exporter Terra Forte has estimated that the drought destroyed as much as 15 per cent of the country’s crop of arabica – the higher quality bean favoured by retailers such as Starbucks. Meanwhile, the government this week said it suspected up to 45 per cent of beans had been damaged in the worst-hit part of Minas Gerais, the state that produces half of the country’s coffee.
Rains finally returned to the southern half of Brazil in the middle of this month and are expected to continue into March. However, it is unclear whether the cold front will extend to Minas’ most important growing region in the south.
Sugar prices, which had been falling for the past two-and-a-half years due to the glut in global cane and beet production, have also followed suit. The ICE March sugar benchmark hit a five-month high of 17.77 cents a pound this week, rallying more than 20 per cent since a four-year low at the end of January.
Although some analysts had earlier regarded the soil moisture in the key centre-south region to remain sufficient, Copersucar, the world’s largest sugar and ethanol trader, on Monday cut its cane crop estimate for the centre-south to 570m tonnes from 610m tonnes as a result of the drought.
Brazilian mills now expected 5 to 10 per cent less cane than previously anticipated, says Jonathan Kingsman, head of the eponymous sugar consultancy, in Switzerland.
Meanwhile, the outlook for other crops such as soyabeans and oranges is more sanguine.
Concerns about South American supplies and firm demand have pushed up soyabeans to five-month highs above $14 a bushel. However Soren Schroder, chief executive of Bunge, told analysts earlier this month that he was still confident of a record soyabean crop this year. “The northwestern part of Brazil is probably better than people expect, and there are some parts of the south that are a little bit worse but on average, the soyabean crop in total looks to be really just an excellent one,” he said.
Orange farmers may also get off lightly, says Ibiapaba Netto, the head of the Brazilian Association of Citrus Exporters, CitrusBR. “We could still see some effect from the drought but oranges are a bit different to other crops because they are more resistant,” he says.
However, in a cruel twist of fate, the heavy rains over the next few days may not only get in the way of Carnival celebrations. After praying for rain for weeks, farmers are now struggling to bring in their soyabeans in states such as Mato Grosso because the heavy rainfall is making harvesting impossible.
Additional reporting by Gregory Meyer in New York