With production in Brazil and Vietnam expected to be high, prices in the global market may decline further.
Coffee prices in the international market are set to move further downwards in the coming season, given the expectation of a bumper output in major producing countries like Brazil, India and Vietnam.
Coffee prices have declined by about 20 per cent to $2.37 a pound (lb) from $2.86 a pound a few months ago. This is bad news for Indian exporters, as higher domestic production would leave them with more exportable surplus, but limited demand overseas.
Already international prices have fallen below Indian prices and exporters have halted further exports. Although in India, the season is coming to an end and not much stock is available for exports, still, when the new season starts in January, opening stock with exporters is estimated around 20,000 tonnes.
“Prices have been declining for the past few weeks mainly because of global financial turmoil and resultant fall in demand in major consuming countries like Europe and the US. Adding to it, the good crop prospects in Vietnam and Brazil for the coming season have come as a dampener. People in these countries do not want to buy for now,” Ramesh Raja, president, Coffee Exporters’ Association said.
He said there could be some more price correction in the coming weeks as there will be a lot of coffee available for exporters in major producing countries. India’s crop prospects are also looking good at the moment and we can expect around 322,250 tonnes, about 48 per cent more than the last year.
For the year 2011, the Brazilian coffee output is likely to be higher by about 20 per cent to reach around 57 million bags (each bag is 60 kg). While the crop in Vietnam is expected to be higher by 10 per cent to touch around 20 million bags compared to the 2010 levels.
“Going by the current indications, the exporters in all these countries would be left with more stocks to export. Considering the current price movement and the expected production levels next year, the price realisation would be lower. The higher crop will ease pressure in the world market and as a result it will lead to stabilisation in prices further,” Sahadev Balakrishna, president, Karnataka Planters Association (KPA) said.
Indian exporters may export more quantity next year, but their price realisations would come down for sure, he said.
For the coffee crop year 2010-11 (October-September), India’s coffee exports grew by 41 per cent to touch 358,278 tonnes. This is an all-time high export year for the Indian coffee sector, which exported 253,715 tonnes during the previous crop year. Considering that the domestic market consumes around 70,000 tonnes next year, exporters will be left with around 250,000 tonnes for export next year, Raja said.
“Price drop is worrying factor at this moment. We have to still wait and watch how the economy will move in Italy, the major importer of Indian coffee,” he added.
A report on global coffee market prepared by the Rabobank said that ICE-NY prices are likely to drop from $2.71 a lb in the second quarter of 2011 to $2.20 a lb in the first quarter of FY12 and $1.90 a lb in the second quarter of FY12.
“Tight fundamentals still support the arabica market, but better outlook for the next Brazilian crop and grower selling is expected to pressure values modestly lower. Robusta prices are likely to be weighed down by the large crop forecast for Vietnam and the falling arabica market. We maintain our outlook that both arabica and robusta prices will ease in the fourth quarter on producer selling, and less bullish speculator activity,” the report said.