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Supply problem ahead for coffee market

The supply deficit is seen in coffee as Brazil, the world's largest producer, has reported one of the worst droughts this year

Mahesh Kulkarni  |  Bangalore 

The global market is heading for a supply deficit. Consumption is provisionally pegged at 145.8 million bags (60 kg each), while the production in crop year 2013-14 is estimated at 145.7 million bags.

The most important variable is the size of the 2014-15 (the season started this month). The country is the world’s top grower and exporter. Damage from the recent drought is yet to be officially quantified, said the International Organisation (ICO), in its latest report on the commodity.

The total consumption in calendar 2013 suggests a significant 2.7 per cent increase to 145.8 million bags, up from 142 million in 2012. This makes for annual growth of 2.1 per cent over the past four years. Much of the 2013 growth has come from traditional markets, particularly America, which has provisionally recorded a strong increase in consumption over 2012.

“Consumption in exporting countries continues to increase significantly, up to 44.7 million bags, or 30.6 per cent of the world total,” said ICO.

“Supply constraints in the coming year are likely to impact prices for both the grower and retail consumer. Indian growers have already seen a big jump in prices. Once inventories dry up and if Brazil reaps a lower crop, prices will further shoot up or stay steady,” said Ramesh Rajah, president, Exporters’ Association of India.

coffee futures prices on the (ICE), the leading network of regulated exchanges and clearing houses for financial and commodity markets, rallied to four-week highs of above $2 a pound on April 10, on uncertainty over output from Brazil. ICE coffee futures for May delivery recently moved up 3.4 per cent at $2.0610 a pound, the highest level since March 13.

Consumption in emerging (EMs) is estimated at 26.8 million bags, slightly lower than 2012. However, most EMs are not ICO members and complete data for 2013 might not be available.

The overall trend in the coffee market is for traditional to account for a declining share of total consumption, mostly due to increased consumption in exporting countries, said ICO.

Ongoing uncertainty over the caused significant fluctuations in prices during March, with monthly volatility of the ICO composite indicator price exceeding 10 per cent in both March and February. The daily price of the ICO composite ranged from a high of 177.29 cents a pound to a low of 153.33 in less than 10 days.

“It is difficult to estimate the extent of the damage from the drought and high heat until the crop is being harvested, although a recent study has referred to it as the largest climate anomaly since the ‘Black Frost’ of 1975, warning that damage to the 2015-16 crop could be even worse,” ICO said in its latest report.

The monthly average of 165.03 cents a pound was nearly 20 per cent higher than February and the highest monthly level in two years. International prices remain unsteady and sensitive to weather events in Brazil, said ICO.

Total exports in February reached nine million bags, up 4.3 per cent on February 2013. This brings the total volume of exports for the first five months of coffee year 2013-14 to 42.7 million bags, about 6.6 per cent lower than the same period in 2012-13.

Certified stocks on the London futures exchange continued to decline, from 404,000 bags in February to 317,000 in March. Certified stocks on the New York market also fell slightly, to 2.9 million bags.

First Published: Mon, April 14 2014. 22:48 IST