Traders have reported expectations of a sharp drop in Brazilian robusta, or conillon, output due to a second straight year of drought, driving up physical premiums far above those of competing producers.
"The new conillon crop is universally accepted to be a very poor one, with estimates ranging between 10 and 13 million 60-kg bags," a London trader said.
"Yield is expected to be generally very poor as well."
Traders said conillon output last season, also hard hit by drought, was some 15-15.5 million bags, and was around 18 million in the previous year.
Brazil is the world's top coffee producer. It mostly produces arabica, a higher quality type of beans than robusta, which is largely used in instant coffee. The country's arabica crop, grown in different areas to robusta, has been abundant and of high quality this year.
European physical coffee traders quoted new crop conillon at around $250 over July futures, compared with around $40 over for robusta from top grower Vietnam, and $120 over for Indonesian supplies.
Physical traders believe that much of the latest robusta crop will remain in Brazil, the world's second largest coffee consumer, as it is uncompetitive on the international market.
The expected shortage of Brazilian robusta was a factor driving some investors to shift from a net short to a net long position in ICE robusta coffee futures earlier this month, traders said.
In the latest Commitments of Traders (COT) data released by the ICE exchange on Monday, robusta coffee speculators cut their net long position by just 5 lots to 10,957 lots as of May 24.
Robusta coffee speculators switched to a net long position of 9,413 lots as of May 10, adding 8,269 lots, according to ICE exchange COT data.
"Some of the managed money funds have been sold the idea that there will be a robusta shortage this year," a senior London-based broker said.
Some traders referred to risks that a La Nina weather phenomenon, following El Nino, could bring a drought to Brazil, potentially damaging next year's robusta harvest.
Traders also cited concerns over dry weather affecting other major robusta producers, such as Vietnam and Indonesia.
Carlos Mera, a senior commodity analyst with Rabobank, said no major robusta exporter was expected to have an optimal crop due to drought, including Vietnam, Indonesia and India, as well as Brazil.
He said recent rains had broken a long dry spell during the inter-crop period in Vietnam, but the damage to crop development made him rule out any chance of a record robusta crop there.
Dealers declined to say if the robusta net long position on ICE could extend further, due to uncertainties over the weather outlook in leading producers.
Posted on: 2016-06-01 4:07 PM 
