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Brazil coffee crop below market expectations

LONDON - Brazilian coffee output for 2016/17 is seen below market expectations largely due to the impact of severe drought on robusta crops, Rabobank said on Wednesday after conducting a crop survey.

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LONDON - Brazilian coffee output for 2016/17 is seen below market expectations largely due to the impact of severe drought on robusta crops, Rabobank said on Wednesday after conducting a crop survey.

It forecast Brazilian coffee output at 51.8 million bags, up 2.6 million year-on-year.

The forecast was below market expectations, in part due to a low robusta estimate of 12.6 million bags, down 3.9 million year-on-year, because of the impact of prolonged dry weather in the main growing areas.

Rabobank said it expected 39.2 million bags of arabica output in 2016/17, up 6.5 million year-on-year.

"We believe these estimates are below current market expectations," Rabobank said.

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"This is quite likely going to result in an increase in our price forecast (and in implied volatility), barring any further depreciation of the Brazilian real," it added.

A Reuters poll published last month forecast Brazil 2016/17 coffee output of 53.5 million bags, including 39.5 million bags of arabica and 14.5 million of robusta.

Rabobank revised its Brazil 2015/16 coffee crop production to 49.2 million from 48.4 million bags.

Its survey of the coffee crop involved driving 5,000 km (3,107 miles) and visiting 348 farms in the world's largest producer.

The low robusta estimate was due to a severe drought in Espirito Santo and irrigation restrictions (October-January), together with a severe cochonilha da roseta (mealybug) infestation.

"The robusta crop was well below our previous (already low) 16 million-bag estimate, due to the lingering dry weather through the growing season," Rabobank said.

"Our results also show a sharp increase in arabicas, but probably lower than the market has been expecting."

Rabobank said it expects large arabica beans in the next season, which will compensate for the scarcity of large beans seen in the current season.

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"The proportion of fine cups last season was very good, but we cannot estimate this for the coming crop, as rainfall during the harvest will be the key factor," Rabobank said.

The arabica crop is concentrated in areas with the largest farms, meaning there could be a lot of stock retention if prices are not right, including if the Brazilian real does not depreciate with inflation.

Rabobank's estimate for Brazilian robusta output was well below potential for more than 20 million bags. 

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