2015 conilon reports3-eu-west-1.amazonaws.com/storage.prezly.com/de/91bc20a...drought has been the...
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The Climate of Coffee CONILON REPORT
2015
What You Don’t Know Can Hurt You
The coffee world is at a tipping point.
Brazil, traditionally the world’s coffee supply backstop, faces unprecedented climate-related challenges. This is still in the manifestation process and not yet fully understood.
Drought has been the market’s focus, but we now believe that temperature change is the bigger issue.
Our mission is to provide a transparent, unbiased analysis of the Brazil 2015/16 crop; outlook for the Brazil 2016/17 crop; global supply/demand outlook; price projections; and an EPS sensitivity analysis for coffee companies that do not utilize available price risk management tools.
Brazil is the key to understanding future price fluctuations. We (myself, Kirsty MacGregor and Mike Nugent) are recognized coffee experts with nearly a century of combined experience across the complete spectrum of the coffee industry. We committed ourselves to undertaking an unprecedented survey of the Brazil crop.
In December, our research team surveyed 1.5 million hectares of the 2.2 million hectare Brazilian growing area, traveling more than 7,000 kilometers over 22 days. We sampled 800 farms and interviewed 16,000 trees. Each farm stop was meticulously geo-tagged with photographs to support and demonstrate our findings.
Our goal was to present a unique, unbiased analytic tool and seasoned analysis that would be available to all interested parties.
What we have produced is a ground-level tree analysis of not just bud set, but 17 other measurable key metrics.
We do not maintain a proprietary trading position. We are apolitical and neutral skilled observers who have not drawn on the opinions of others. We let the trees do the talking. And the trees had a lot to say.
Best,
Dub Hay PartnerIntelligent Coffee Insightswww. IntelligentCoffeeInsights.com
For further information or inquiries regarding this report, please contact:[email protected]@[email protected]
“We are drowning in information but starved for knowledge.”
—JOHN NAISBITT
1 Intelligent Coffee Insights The Climate of Conilon 2015
2015The Climate of Coffee CONILON REPORT
PLANTS REACTION TO TEMP.WHAT WE SURVEYED
WHAT WE TRAVELED
VARIABLES
REGION
REGION
CROP SIZES WE HAVE NOW SURVEYED FOR 2015. PLUS PROJECTED 2016 AND 2017
MINAS GERAIS
ESPÍRITOSANTO
54%
22%
OF BRAZILIAN
COFFEE AREA
OF BRAZILIAN
COFFEE AREA
LATITUDE
LONGITUDE
ALTITUDE
LITER PER TREE
ROW WIDTH
TREE SPACING
IRRIGATION
AGE
HEIGHT
GROWTH RATE
ENZYME ACTIVITY
RESPIRATION
PHOTOSYNTHESIS
*RECENT HISTORIC SIZE OF BRAZIL CROP COMPARED TO REST OF WORLD
*BASED ON RENOVATION CYCLES AND TREES’ REACTION TO THE NEW CLIMATE AT THEIR ALTITUDE
*BASED ON CURRENT CHERRY COUNT ON TREES
VARIABLES
51.155.055.4
50.0
TEMPERATURE
IMPA
CT
20
142
013
20
122
011
7,000 km22 days
PEST/DISEASE
FOLIAGE
HUSBANDRY
RENOVATION
NUTRITION
NUMBER OF NODES
PER BEST BRANCH
NO. CHERRIES
PER BRANCH
CHERRY DEVELOP.
800
18515–17 variables
LOCATIONS
CONILONLOCATIONS
REGION
REGION
AVERAGE RANGEALTITUDE
METERS ABOVE SEA LEVEL
METERS ABOVE SEA LEVEL
534–1256 METERS
41–433 METERS
919
120
ARABICA
CONILON
MILLION OUT OF 145.5
MILLION OUT OF 154.1
MILLION OUT OF 150.3
MILLION OUT OF 145.1 20162015 2017
FORECAST—CONILON GROWTH
1 BEAN = 1 MILLION BAGS
2015 2016
TEMPERATURE
RE
SP
ON
SE
S
2 Intelligent Coffee Insights The Climate of Conilon 2015
Climate Change—Long-Term
The global climate is getting warmer. The increase in temperatures is accelerating.
The Guardian reports that 2014 was the hottest year on record, with global temperatures the highest they’ve been since official recordkeeping began in the 1880s. This is also the first time the record has been broken in the complete absence of any warming, El Niño-like influence. This latest news only serves to underline the overall global warming trend. Climate scientists say this is the 38th consecutive year that temperatures have been above average, and that the odds of this temperature shift occurring due to climatic variability, rather than a new climatic paradigm, are less than 1 in 27 million. Perhaps most importantly, scientists also believe heat records will continue to be broken in the years to come.
Brazilian Climate Change: It’s NOT just the drought. Understanding that this is NOT just a one-crop issue is critical.
The extreme summer drought in Brazil hit headlines around the world in 2014. The main focus was the water deficit, but this perhaps has obscured another more important story—the long-term continuing rise in temperatures.
Mean annual temperatures in the main Brazilian coffee lands have risen by almost 1°C/1.8°F since the 1970s.
More strikingly, mean maximum monthly temperatures have risen by an even higher margin in the last forty years, with certain important Brazilian coffee regions seeing greater extremes of heat.
Some main Arabica regions are now regularly experiencing higher temperatures than the main Conilon regions.
These changes will only continue, and perhaps even accelerate.
The 2014 weather was particularly stressful for coffee trees, but it is only an example of what could happen regularly in the near future.
The Coffee Climate
The physiological response of fruit trees to temperature change is complex. In simple terms, there is a bell curve for all plants, where an optimal temperature induces the highest growth rate, and the rate of growth falls off as temperatures get much hotter or much colder. Extreme high temperatures are generally not lethal to coffee trees, but productivity of fruit is incrementally affected as trees conserve energy. As the mercury rises, photosynthesis, respiration and other biochemical processes drop to rates unviable for coffee production.
This temperature threshold is different for Arabica and Robusta.
These changes will only continue, and perhaps even accelerate.
Unviable for coffee production
3 Intelligent Coffee Insights The Climate of Conilon 2015
Arabica and Conilon—a Diverging FateThe shift in the Brazilian climate has been more extreme in the main Arabica regions than in the Conilon regions.
To make things worse for Arabica, its production was already taking place in more extreme daily and annual ranges of temperature, nearer the higher end of the ideal range of temperatures for its production. Today’s temperatures are already knocking at the door of the viability threshold for Arabica.
Conilon production has more of a safety buffer; even if temperatures continue to rise, the viability threshold is far away.
FIG. ARABICA VS. ROBUSTA MONTHLY MEAN MAX TEMPERATURES 1990s
22
24
26
28
30
32
34
DE
GR
EE
S (
C)
ESPÍRITO SANTO ROBUSTA REGION
SOUTH MINAS ARABICA REGION
JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC
FIG. ARABICA VS. ROBUSTA MONTHLY MEAN MAX TEMPERATURES 2014
JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC22
24
26
28
30
32
34
DE
GR
EE
S (
C)
ESPÍRITO SANTO ROBUSTA REGION
SOUTH MINAS ARABICA REGION
4 Intelligent Coffee Insights The Climate of Conilon 2015
All data is available for use and analysis.
Our Survey
Intelligent Coffee Insights has conducted a Brazilian coffee crop survey to provide a transparent, independent and timely assessment of the 2015 crop.
The survey was also designed to capture evidence of the longer-term impact of a changing climate on future Brazilian coffee production, through certain specific pathways.
We assessed 15–17 variables at 800 carefully chosen geographic farming locations across Brazil on our tour, over 22 days and 7,000 kilometers with all data and visual evidence time-stamped and geo-tagged. Our methodology is clearly explained, and all data is available for use and analysis.
For an interactive tour, visit:
http://doanegft.com/map/coffee.php
5 Intelligent Coffee Insights The Climate of Conilon 2015
NOV 24 NOV 29 DEC 04 DEC 09 DEC 14
200
400
600
800
1000
1200
1400
ME
TE
RS
2014
ESPÍRITO SANTO CONILON
ESPÍRITO SANTO, ZONA DAMATA & VALE DO RIO
DOCE ARABICA
SOUTH AND SOUTH EAST MINAS
TRIÁNGULO MINEIRO AND ALTO PARANAÍBA (CERRADO)
FIG. BRAZIL CROP SURVEY—ALTITUDES OF THE SAMPLE
The crop in 2016 will be an even more impressive one, with the potential for at least two million more bags produced.
Conilon Findings
In the Conilon region alone, we investigated 185 farms, as illustrated on the map above. We found the Conilon farming sector in the best of economic and agronomic health.
The Conilon trees are not even at their top potential, as many are experiencing a mild off-cycle after last year’s bumper crop. The crop in 2016 will be an even more impressive one, with the potential for at least two million more bags produced.
Conilon foliage was at impressively healthy levels, with 95% of trees scoring excellent, good or fair, while husbandry scored excellent, good or fair in 93% of the sample.
Only 8% of the sample had strong infestation of insects or disease (mostly fungus in this case) and only 3% of the sample had visible malnutrition.
WE FORECAST A 2015 CONILON CROP OF 11.4 MILLION BAGS
IN ESPÍRITO SANTO, ESTIMATING TOTAL BRAZILIAN CONILON
PRODUCTION OF 16.0 MILLION BAGS. OUR RESEARCH REVEALED
AN AVERAGE PRODUCTIVITY OF 32.6 BAGS PER HECTARE; THE
AVERAGE CHERRY LOAD PER TREE WAS 4.1 LITERS. WE ARE
ASSUMING A DE-HUSKING YIELD OF WEIGHT OF FRESH CHERRY
TO WEIGHT OF GREEN BEAN OF 23%.
KEY FINDING
IT APPEARS THAT HIGHER TEMPERATURES IN BRAZIL ARE NOT
A PROBLEM FOR CONILON PRODUCTION AND SHOULD NOT BE
FOR THE IMMEDIATE FUTURE. AS LONG AS PESTS, DISEASES AND
WATER BALANCE ARE CONTROLLED, WE SEE A BRIGHT FUTURE
FOR THE BRAZILIAN CONILON CROP.
KEY FINDING
6 Intelligent Coffee Insights The Climate of Conilon 2015
FIG. BRAZIL CROP SURVEY—PEST/INSECT PREVALENCE
7% 24% 20% 27%
ES CONILON ZONA DA MATA ARABICA
SOUTH MINAS
ARABICA
CERRADO
ARABICA
Structurally, the average tree density was 2,800 trees per hectare, while 54% of trees were younger than ten years old. Farms were located from 40 m to 450 m above sea level, with the average altitude 120 m.
In over three-quarters of our sample, we found irrigation. Local reservoirs were full to the brim, unlike in the South of Minas and the Cerrado.
What started to be clear on the trip was how older trees recovered much better from the hard pruning. We have noted that trees heading towards twenty years old returned from hard pruning with a crop twice as productive as trees that were nearer to ten years old. This theme continues in a more important fashion in the Arabica areas. However, it should be well noted that young Conilon trees in Espírito Santo were still recovering relatively well from hard pruning.
KEY FINDING
WE ESTIMATE THAT THE TOTAL CONILON AREA IN ESPÍRITO SANTO
IS 350,000 HECTARES. THIS ASSUMES THAT THE TWO OFFICIAL
BRAZILIAN AGENCIES ARE UNDERESTIMATING THE CONILON AREA
BY ABOUT 40,000 HECTARES. BOTH AGENCIES HAVE STATED THAT
THE CONILON AREA HAS DECREASED SUBSTANTIALLY IN RECENT
YEARS, BY AS MUCH AS 20,000 HECTARES. WITH SOME EVIDENCE
FROM THE FIELD (A STRUCTURAL EXCESS OF YOUNG TREES,
FINDING CONILON WHERE WE SHOULD HAVE OFFICIALLY FOUND
ARABICA AT ALTITUDES AROUND 400M), WE BELIEVE THIS IS NOT
THE CASE; AND IN FACT, THE AREA HAS INCREASED DUE TO THE
ECONOMIC SUSTAINABILITY OF CONILON FARMING.
Economic sustainability of conilon farming
DIFFERING STRONGLY FROM THE ARABICA REGIONS, THE HARD
PRUNING AND RECOVERY CYCLE IN ESPÍRITO SANTO CONILON
WAS NOT VISIBLY AFFECTED BY INCREASING TEMPERATURES.
THERE WAS SPECTACULAR PRODUCTIVITY OBSERVED ON TREES
PRESENTING THEIR FIRST RETURNING CROP.
KEY FINDING
7 Intelligent Coffee Insights The Climate of Conilon 2015
Arabica at the Crossroads
Of course, the Brazilian Conilon crop, (the second largest robusta crop in the world) is only part of the story. It complements and provides contrast to the larger and world-leading Arabica crop in Brazil. The Arabica crop is facing much more severe issues which we have carefully quantified and specifically outlined.
The impact of last year’s weather and, more importantly, the changes in the Brazilian climate are critical to serious analysis of coffee supply and prices.
The rest of the story about Brazil coffee can be found in our full report. It includes our findings on the 2015 and future crops, global supply and demand, and pricing models. It also discusses what this information means to every stakeholder in the coffee industry, from farmer to consumer, as well as how this could impact investments not only in futures, but also in the equity market and across the global coffee market. To access the full report, please visit: Intelligentcoffeeinsights.com.
8 Intelligent Coffee Insights The Climate of Conilon 2015