'Precarious' dynamics to keep coffee prices high

by Agrimoney.com

Coffee prices, which set fresh multi-year highs on Wednesday, are to remain strong, experts said, cutting their estimate for the world crop while highlighting rising consumption.

A "precarious balance" between supply and demand of beans "continues to favour firm prices", the International Coffee Organization said.

Although exports, of arabica beans – if not robusta coffee - were soaring, up by nearly one-quarter to 23.4m bags in the first four months of 2010-11, "the prospect for replenishment of stocks in producing countries remains weak", the ICO said.

Indeed, the organization cut by 1.1m bags to 133.7m bags its estimate of world output last year, noting that "adverse weather continues to affect the coffee-growing areas in many parts of the world".

Estimates for output in Mexico, Nicaragua, Tanzania and Uganda saw particular downgrades.

Rising demand 

Meanwhile, world consumption continues to grow, especially in producing countries - by 3.3% in 2010, the ICO said in its first forecast for the year, compared with flat demand in importers such as the European Union.

Brazil's consumption jumped 4.1% to 18.9m bags, leaving the country within 3m bags of overtaking the US as the top coffee-drinking nation, as well as the top grower of the bean.

World use rose by 1.0% to 132.5m bags last year, the ICO said, a figure signalling a production surplus of only 1.2m bags to spare – and this in an "on" year in Brazil, which has a two-year cycle of higher and lower production.

"Given the limited availability of arabica coffee on the international market, and the strength of domestic consumption in Brazil, high levels of production in Brazil… failed to have a negative impact on prices," the group said.

"Market fundamentals continue to favour firm prices."

Arabica vs robusta

The jump in exports so far in 2010-11 has been led, among the top producing countries, by Colombia, which is recovering from successive seasons of weather-hurt harvests, and whose shipments jumped 38% to 3.4m bags.

Brazil's exports rose by 23% to 12.8m bags.

However, world robusta shipments fell by 5.9% to 10.3m bags, depressed by a tendency among growers in Vietnam, the producer of the bean, to hold back crop in expectation of higher prices.

Robusta beans for May delivery rose 1.5% to $2,499 a tonne in London on Wednesday, the highest for a nearest-but-one contract for nigh on three years.

Arabica beans for May set a fresh 34-year high of 290.30 cents a pound.

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