Blame frost in Brazil

Press, 26 May 1977, Page 16

Blame frost in Brazil

By

ROBIN STAINER

in the

“Guardian,” London

The warning bell on the commodity ticker rings. Somewhere in the world an important news item has broken. Last week, when traders on the London Commodity Exchange gathered round, summoned by a signal, they read that Camilo Calazans, head of the Brazilian Coffee Institute, had confirmed their worst fears. Earlier trade reports that very cold winds had damaged leaves on coffee trees in the State of Parana, he told the world, were true. All morning, in their offices and on the market floor, traders had nervously followed the agency reports. They were jittery. No matter that Calazans could give no official indication of the extent of the damage, just the mention of cold winds was enough to raise the frightening spectre of another devastating frost. Dealers who had sold in recent weeks, helping to bring prices on the future’s market tumbling from March’s alltime peaks above £4OOO a tonne, were suddenly joined by speculators in a mad scramble to buy pieces of paper representing five-tonne lots of coffee. The coffee boom seemed to be on again. Any chance that those who had sold short would soon be able to buy back in at lower level had been snatched away. There had been many warnings that allowing the steady fall of around £lOOO from the peaks was not sensible trading, at least until the frost season in Brazil was over. Producing countries had certainly not lowered their export price objectives. It is now clear that they would have been foolish to have reacted to the weakness of the “paper” markets and are likely to be more determined than ever to hold out for their prices as long as possible. What all the other recent "scare” stories had not managed to do, just the suggestion of frosts did. In a

matter of hours, prices had jumped by more than £6OO a tonne, coming to within £4OO of old peaks.

This surge of buying is understandable. No-one can easily forget those two fateful days in July, 1975, when frosts wiped out 75 per cent of the potential 1976 Brazilian crop, transforming the world coffee economy from one of traditional glut and desperate efforts by producers to raise prices to one of acute shortage. Since those days two years ago, prices have risen by 700 per cent. Brazil’s rate of recovery from that setback has been the critical factor in all estimates of how quickly world supplies could return to normal. The world’s biggest producer, with a commanding 30 per cent share of world export markets, Brazil initiated huge replanting schemes, switching production to areas less vulnerable to frosts than southerly Parana. But it takes four to five years for coffee trees to begin to produce in commercial quantities, so it is not expected that Brazilian production will reach the pre-frost average of 25M bags of 60 kg each until 1979/80. The current harvest, which appears to have escaped damage by the winds, is expected to yield between 13M and 17M, depending whether one’s source is producer or consumer inspired, compared with last year’s disaster-hit harvest of six million. So last week’s news gave everyone a nasty fright — good reason why buyers in the trade and supermarket shoppers should not yet presume the worst is over. No one will relax until Brazil has escaped the next three-month frost danger period unscathed. Then, prices could show a sustained fall. Any benefit to shoppers, though, could take a long time to filter through, as retail prices are still lagging several months behind the world market.