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Global coffee prices set to soar as supply declines

Drought in Brazil at beginning of crop year will result in global supply deficit

Mahesh Kulkarni  |  Coonoor (Tamil Nadu) 

Coffee prices are set to rise further, as the crop year 2014-15 stares at a supply deficit in the global market. Prices, ruling at 190-200 cents per lb (pound), are poised to move up to 220-230 cents per lb by December.

“Drought in Brazil at the beginning of the crop year will result in global supply deficit and concerns over its crop will trigger price rise,” Jawaid Akhtar, chairman, Coffee Board, told Business Standard.

Global coffee production remained flat at 145.2 million bags (each bag 60 kg) in 2013-14 as in previous year (145.3 million) bags. Consumption, however, surpassed supply to 145.8 million bags.

As the world’s largest coffee producer, Brazil harvested 44.57 million bags in 2014, a decline of 9.3 per cent from 49.15 million bags in 2013.

“Brazil has been going through unseasonal weather patterns this year. After drought in the initial months, which affected the crop, prolonged hot and dry months may further damage the crop in 2015. As a result, crop output will be lower at 42-43 million bags next year,” said Nishant R Gurjer, coffee exporter and former chairman, Karnataka Planters’ Association.

Production in Indonesia, the third largest producer, is also estimated to decline 14 per cent to 10 million bags in 2014 from 11.67 million bags in 2013, Akhtar said.

Production in Colombia, which is recovering after massive replantation, will increase 25 per cent to 12 million bags this year from eight million bags, with prospects of good crop in future. Vietnam, which leads in growing Robusta beans, however, is set to harvest a record crop next year.

Though the Coffee Board has projected a bumper crop for 2014-15 at 344,500 tonnes, planters estimate about 20 per cent lower crop in India, the sixth largest producer, due to widespread attack of White Stem Borer, followed by heavy and continuous rain between July and September.

Planters estimate production to be in the range of 290,000 tonnes to 300,000 tonnes, almost same as the last year. “Brazilian production risks continue to support the outlook for the International Coffee Exchange Arabica coffee futures, and some volatility is expected during the key flowering period of September-October,” Rabobank said in its latest report. Indian exporters, however, are unlikely to benefit from the price rally, as no stock is left with them. Harvest commences in November for 2014-15 crop year and export season begins in December-January.

Monthly average of the ICO (International Coffee Organisation) composite indicator for August settled at 163.08 cents per lb, up 6.93 per cent from July price. Daily price increased to 169.95 cents on August 29 from 157.82 on August 8.

ICE Arabica futures are expected to average 185 cents this quarter (July-September) and edge a little lower from current level to 195 cents per lb, the Rabobank said.

ICE Arabica coffee futures, however, fell on Tuesday due to Brazilian uncertainty. The ICE benchmark December Arabica coffee contract closed 1.85 cents down or one per cent at 192 cents a pound.

Prices of other milds, which consists of Indian Arabica, moved in the range of 205-225 cents per pound in August. Overall, dry weather in Brazil has lifted prices by 70 per cent this year.

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First Published: Wed, September 10 2014. 22:34 IST