Global Arabica prices to rise 15-20% in Q2

Lower-than-expected harvest in Brazil cited as the reason

The global Arabica coffee prices are set to increase 15-20 per cent towards the second quarter of the next financial year amid prospects of a smaller-than-expected crop in Brazil, the world's largest grower.

Growers and exporters are hoping the heavy downpour in December in major growing regions of Brazil would result in damage to the crop and the country might harvest lower crop in an on-year (productive part of the crop cycle). Brazil is likely to pick 51 million bags (each 60 kg) against its potential of 60 million for the 2014-15 crop year, according to sources.

ICE Arabica coffee futures gained late last week after falling more than one per cent in the previous session. However, new crops are expected to keep prices low in the oversupplied market, the Coffee Board of India said. “A series of higher daily highs and higher daily lows are evident from the early November low in coffee. ICE Arabica coffee futures for March delivery ended 1.5 per cent higher at $1.1835 a pound (0.45 kg).”

The exporters expect prices to settle 15-20 per cent higher at 140 cents a pound towards the beginning of winter.

“This year Brazil is likely to pick the smaller crop though it is an on-year. Brazil is expected to overtake the US as the biggest consumer in four to five years. The rise is dependent on consumption. Prices might touch 140 cents a pound by July if Brazil picks the smaller crop,” Anil Kumar Bhandari, former chairman of Karnataka Planters’ Association and president of India Coffee Trust, said.

In 2013, the prices had fallen below the cost of cultivation. Compared to 200 cents a pound in January 2012, the prices had fallen 43-45 per cent to 108-115 cents in August. This was largely due to a record ‘off-year’ crop in Brazil and the continued economic crisis in the European Union.

“The prices hit a low of a decade and were 20 per cent lower than the cost of production last year. However, there are some contradictory reports on the crop prospects in Brazil. Some analysts have projected a lower crop and some higher. It is too early to make any proper estimate. By the current trends, we can expect prices to trade 110-130 cents a pound compared to the earlier expectation of below 100 cents a pound,” said Ramesh Rajah, president, Coffee Exporters Association of India.

In the long term, he said the prices could move sideways and there was a possibility of those touching 130 cents towards October as the crop size would be known by then.

“It is difficult to forecast prices because so many producers and consumers are involved. There are two types of forecasts, one by the sector, consultants and roasters. Other by the growers. One will be at the higher and the other at the lower. I think the reality is somewhere between the two,” Jawaid Akhtar, chairman, Coffee Board, said.