Uncertainty on coffee export growth

With correction likely in international futures, opinion divided on impact beyond near term.

India’s coffee exports may be hit due to higher prices the domestic produce is getting in the spot market. The domestic players are taking cues from high international futures prices.

However, international coffee futures have seen extreme fluctuation in the past week. They are now trading at an all-time high on the back of a supply crunch in major producer nations such as Brazil and Vietnam as well as speculation by hedge funds. While coffee for the July delivery recently ended four per cent higher at $1.5095 a pound on ICE Futures, Liffe July Robusta was up as much as 18.2 per cent over last week. Liffe July Arabica surged 11 per cent during this time.

“Usually, exports from India peak in December-June. In addition to the present slow pace, higher prices in the market may further restrict exports,” said Jabir Asgar, vice-chairman of the Coffee Board of India.

He, however, also said that international futures prices were likely to see a correction quite soon, on the back of new arrivals from Brazil and Vietnam.

Indian coffee exports were up 48 per cent to 141,695 tonnes during January-June, in comparison to 95,662 tonnes in the same period last year. The country’s exports, which dropped 13 per cent to 189,399 tonnes in 2009 from 217,993 tonnes a year ago, were expected to turn around this season, owing to revival of demand. However, the price disparity may act as a spoiler. “The current volatility is mostly due to fund buying. Due to higher prices, most buyers are not ready to enter into contracts at this point in time. They want prices to stabilise before entering into any commitment,” said Asgar.

Possible correction
Some market analysts and traders see a correction in domestic prices. “At present, domestic coffee prices are higher than in other producing nations like Vietnam or Colombia. As a correction of eight to 10 per cent is expected in international futures, prices in the domestic market should follow,” said Suresh Babu, a Hyderabad-based trader.

As the Arabica variety was usually exported during January-June, it was exports of robusta that would be impacted due to such pricing, he added.

Chowda Reddy, an analyst at JRG Wealth Management, said exports might come down due to higher prices, as overseas buyers were reluctant to enter the market at this level. However, he said the retail market was yet to be affected, as the price fluctuation would percolate with a lag effect.

But some planters have a different view. “Domestic prices of coffee have come down in comparison to February. Also, it’s too early to take a view about the recent upward price trend and its impact on exports,” said Ajoy Thipaiah, a Karnataka-based planter.

He said prices could rule at the current level due to the ongoing supply crunch, which had been reflected in the recent revised production estimate of the International Coffee Organisation. It recently revised downward its forecast for world output in the 2009-10 season by 1.1 per cent to 120.6 million bags (each weighing 60 kg) due to disappointing harvests in Africa, Central America and Mexico.