by Agrimoney.com
Investors may be focusing on the wrong weather risk in allowing coffee prices to fall 10% over the last week to their lowest since January, a leading analysts has said.
Coffee prices set course on Tuesday for a fifth successive close, amid waning expectations for a frost in Brazil, the world's major producer – a weather event which has, in the past, proved devastating for crops and provoked large upswing in prices.
"Updated weather forecasts for Brazilian coffee production areas are calling for warmer and dryer weather, which continues to diminish the chances for a damaging freeze to this season's upcoming production," Terry Roggensack at Hightower Report said.
With frost fears fading, Rabobank highlighted that "expectations that supply will make it to the market, [which] have slowed commercial buying", at a time when harvest pressure often prompts a seasonal downswing in prices.
'Could spell trouble'
However, soft commodities specialist Judith Ganes said that the chances of a Brazilian frost were anyway "minimal, as in any given year". A march north by plantation owners to more tropical climes in recent years has cut the risk of frost.
"Where attention needs to be riveted is on the dryness that is impacting several Central American countries," she said, noting that the same high pressure ridge causing drought in Texas was keeping rain too out of countries further south, such as El Salvador, Guatemala, and Honduras.
"Farmers are worried that this could spell trouble for the 2011-12 crop, with some green beans already dropping to the ground in areas that should normally be drenched in rains at this time of year," Ms Ganes, at J Ganes Consulting, said.
"This could set the stage for continued tightness in mild arabica coffees in the season ahead."
Such a threat, during an "off" season during Brazil's two-year cycle of higher and lower production, meant coffee supplies could "easily become pinched against later this year", and that the "market is not out of the woods yet".
Vietnam acceleration?
The comments come amid reports that coffee production in El Salvador could fall by more than 20% in 2011-12.
However, caution by Ms Ganes over Vietnam - "which simply has not be able to see the strides in production that would have been expected" following strong growth in the 1990s – appeared at odds with forecasts from US Department of Agriculture attaches.
The attaches forecast that slow growth in production in 2010-11 would be followed by a 10.0% rise to 20.6m bags in output next season, thanks to "favourable" weather, and the incentive that high prices have given to farmers to invest in plantations.
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