May 11, 2012

El Nino Could Reduce Risk of Freezing Temperatures in Brazil

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

As the Pacific Ocean transitions from a La Nina to a neutral position, and with the possibility of an El Nino developing over the next few months, meteorologists in Brazil now feel that the possibility of a frost or freezing temperatures in Brazil over the next few months will be reduced. A lack of freezing temperatures would be good news for producers of coffee, safrinha corn, sugarcane, and oranges, all of which suffered losses from cold temperatures in 2011.

The rationale behind their forecast for reduced chances of cold temperatures is the fact that an El Nino generally results in increased rainfall and higher humidity during the traditional colder months in southern Brazil (May, June, and July), thus reducing the chances of freezing temperatures.

If Brazil gets through the colder months without freezing temperatures, it would be in stark contrast to the La Nina conditions of 2011 when two episodes of freezing temperatures hit southern Brazil, one in late June and then again in early August.

Reduced chances of freezing temperatures could help to continue calming the coffee market, which hit 30 year highs in 2011. In recent decades, coffee production has been migrating northward in Brazil which has also diminished the chances of a frost. While the increased chances of rainfall might reduce the risk of cold temperatures, too much rain during harvest could result in reduced bean quality.

In Conab's second estimate of the Brazilian coffee crop released yesterday, they estimated that 50.45 million sacks will be produced in 2011/12, which would be 16% more than the 43.48 million produced last year. If achieved, it would surpass the previous record of 48.48 sacks produced in 2002/03. Arabica coffee production is expected to hit 38.13 million sacks or 76% of the total and robust coffee production is estimated at 12.31 million sacks or 24% of the total.

The state of Minas Gerais is the largest coffee producing state in Brazil with 26.3 million sacks with Espirito Santo is second with 9.36 million sacks. Coffee acreage in Brazil is estimated at 2.4 million hectares, which is 3% more than the 2.27 million hectares grown last year (an increase of 68,300 hectares).

Cold temperatures are also a risk factor for safrinha corn production in Parana (the second largest producer) and in Mato Grosso do Sul (the third largest producer). The safrinha corn crop was generally planted on time in southern Brazil and it has been developing normally. The additional rainfall forecasted to accompany the development of El Nino would certainly be a benefit for the safrinha corn crop.

Sao Paulo is by far the largest producer of sugarcane in Brazil (over 60% of the total) and freezing temperatures in 2011 caused the sugarcane crop to flower, which is rare for sugarcane. When the sugarcane flowered, the crop expended energy in the flowering process, thus reducing the total tonnage and subsequently the amount of sugar and ethanol production. A lack of cold temperatures in 2012 would be welcome news for sugarcane producers are they try to regain lost production.