Overnight between 19-20 July, a damaging frost hit large parts of Brazil’s Minas Gerais state, the largest coffee-producing region in the country, as well as isolated areas of Paraná. Initial forecasts had called for cool weather, and Canadian weather models had indicated a possibility for overnight lows as cold as -1C.
Instead, temperatures unexpectedly dropped as low as -4C across parts of Sul de Minas. Early reports indicate that at least 30% of the trees across Sul de Minas appear to be adversely affected, and market participants have expressed to Mintec that anywhere from 1.5 million to as much as 5 million bags (60 kg) of coffee could be lost from the 2022/23 crop. This would compare to around 150-200k bags estimated to be lost to the smaller frost at the beginning of July. Such widescale frost damage could be the worst the region has seen since 1994, with some market participants stating that it could even rival 1979 in terms of losses.
This comes at a very difficult time for Brazilian coffee producers – the droughts throughout the 2021/22 growing season have coincided with an off-cycle in yields, with market participants expressing the view that only 32-35 million bags of arabica may be produced during the current harvest. According to market participants, this could cause substantial tightness of supply which would then need to lean on existing 2020/21 stocks to make up the deficit to 2022/23, where an on-cycle crop would be able to replenish global stock levels. On the higher end of estimates, a 5 million bag loss due to this week’s frost could be more than 15% of forecasted production in 22/23.
As a result, futures prices have rallied sharply since Tuesday, with front month prices at the time of publication up 31% since market close on Monday 19 July to trade above USc 200/lb for the first time since October 2014 . However, Mintec Benchmark Prices for Brazilian varieties were assessed unchanged on 22 July, as producers wait to understand where the futures market ends up. Mintec Benchmark Prices for Santos 2/3 17/18 FC remain at USc -8/lb, and MTGB 3/4 GC at USc -18/lb, both basis DEC21.
The Canadian weather model continues to forecast the potential for further frost in Sul de Minas throughout the weekend. Damage estimates will continue to take place in the coming weeks. Mintec will provide updates to those estimates as they become available.