April 10, 2014 / 6:50 PM / 6 years ago

UPDATE 2-Brazil will not face coffee shortage after drought, industry says

(Recasts with context, adds additional quotes)

By Gustavo Bonato

SAO PAULO, April 10 (Reuters) - Brazil has enough coffee stocks to supply exports and domestic demand this year even though a severe drought will result in a lower-than-expected harvest, the nation’s coffee industry association Abic said on Thursday.

The association said its initial forecast for a crop of 47 million 60-kilogram bags may be further reduced when the extent of damage in the world’s top producer becomes clearer.

Even so, “the harvest is going to be large enough to supply the domestic market and exports,” Nathan Herszkowicz, executive director of Abic, said at an event in Sao Paulo.

The extent of the damage to crops is still not known and market participants have said a global surplus of almost 5 million bags will cushion some of the damage to supplies.

But the long dry spell or drought, which has almost doubled the price of arabica coffee in two months, is expected to hurt cherry growth and has coincided with a devastating leaf rust that has swept across Central American, hurting yields there.

Brazil grows roughly 40 percent of the world’s arabica, which forms the backbone of most major commercial blends used in household names including Folgers.

Arabica coffee prices rose to their highest in more than two years on Thursday on rising concerns over the drought.

Brazil’s national coffee council last week forecast production of between 40.1 million and 43.3 million bags, which would be Brazil’s smallest crop in five years.

(For a FACTBOX on forecasts for Brazil’s coffee crop, click here: )

In January, before the worst of the drought, the government forecast a coffee crop of between 46.5 and 50.2 million bags compared with 49.2 million bags a year earlier. Crop supply agency Conab will issue a new forecast in May.

“Some regions had more damage than others, but the extent is still not known,” Herszkowicz said. “We don’t want to over-dramatize the situation.”

A study from the state of Minas Gerais, which produces half of Brazil’s coffee, showed that as much as 45 percent of the crop may have been damaged by the drought.

Brazil exported 31 million bags of coffee in 2013 and another 20 million were consumed domestically, according to Abic. The country’s official coffee stock figures will be updated later this month, but as of March 2013 Brazil had 14 million bags on hand.

Exporter Comexim said on April 2 that those stocks would likely fall to 11.5 million bags by July 1. Analysts are saying the drought will likely cause significant damage to beans meant to be harvested in 2015, meaning stocks could be further pressured in future years.

Though it won’t trigger a supply shortage this year, the smaller crop will likely cause domestic prices of coffee to rise 35 percent over the course of 2014 compared with the end of 2013, Herszkowicz said.

Even so, domestic consumption should not be affected, as prices of the beverage are still considered reasonable in Brazil, he said.

“In 20 years, the price of coffee rose just 60 percent, well below inflation,” Herszkowicz said.

Local coffee consumption in 2013 fell for the first time in 10 years, to 20 million bags, or 40 percent of the 2013 crop, Abic said in February.

In addition to Arabica coffee, Brazilians consume conilon, the local version of robusta, which is generally not exported. The country’s coffee association Cecafe expects total exports to rise 6 percent this year. (Writing by Caroline Stauffer; Editing by Lisa Von Ahn, Bernadette Baum and Bernard Orr)

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