Overseas coffee prices seen steady in medium term

Coffee prices overseas are seen steady in the medium term as consumption increases with the advent of winter, traders said on Tuesday.

Coffee, the world's second largest traded commodity after crude oil, is mainly grown in the southern hemisphere, while it is consumed mainly in the northern hemisphere.

"With the peak season approaching fast, we believe more and more traders will enter the (global) market. Those who held back their stocks will be eager to cash in on the boom," the trader said.

But even if the stockpiles are released, prices will remain stable as demand is seen higher.

Coffee prices were extremely volatile overseas in the last couple of months, as trade was dominated by fund investors than consumers.

"Even now, funds and big traders are dominating the global coffee trade as they view coffee market as a good investment avenue," the trader said.

Another trader said that with closing stocks in both consuming and producing countries coming to an end, market players will be busy procuring coffee.

The trader, however, said prices of Robusta variety might rise in the medium term on expectation of lower crop in the new year to October 2007.

"The closing stock of Robusta in Vietnam is extremely low and the new crop is also estimated to be short," said Milan Shah, director, Madhu Jayanti Group.

Shah said the new coffee crop from Vietnam is 25% lower than last season's crop and the quality of the new crop was also quiet low.

"This year, ripening of coffee flowers (in Vietnam) has not been good due to erratic climatic conditions," Shah said.Vietnam is the world's largest producer of Robusta coffee.

According to an estimate, Vietnam is likely to produce 14 million bags (1 bag=60 kilogram) in 2006-07 (September-October), against previous year's output of 11 million bags.

Traders said that despite damage to the crop due to series of hurricanes, prices of Arabica coffee might remain stable.

They said the anticipated bumper crop of Brazil for the 2006-07 season will neutralise the damage caused due to hurricanes.

Brazil is the world's largest producer of Arabica coffee. Brazil's coffee output for 2006-07 has been estimated at 40 million bags against 33.30 bags this year.

In Brazil, harvest for Arabica coffee takes place from May-August. Robusta is harvested during January-March in Vietnam.

"On New York Board Of Trade prices of Arabica will hover around $105-$95 cents per pound levels. On London International Financial Futures Exchange, prices for Robusta will be around $1,000-1,100 per tonne," said Ravi Shanker, an analyst with Geojit Financials.