Coffee Heats Up, Supply Concern Rears Anew

Coffee prices rose sharply on Tuesday as monthly stock figures helped to reawaken concern about tight supplies and halt a three-week slump.

The Green Coffee Association (GCA) of New York reported after the close of trading on Monday that stocks of green coffee stored in US warehouses increased in May by 122,000 60-kg bags to 1,977,000-kg bags. Most industry participants had expected a build-up of some 200,000 bags.

"GCA rise was very modest," said Refco Inc analyst Ann Prendergast. "So, we are still looking at limited stocks. We had seen the market come off more than $1 and this stopped the deterioration and reminded everyone that, fundamentally, supplies are tight."

 

At New York's Coffee, Sugar and Cocoa Exchange, coffee for July delivery closed 12.20 cents per pound higher at $2.0870, still more than $1.00 below the 20-year high of $3.18 per pound set in late May. The recent decline had been accelerated by a bearish world coffee production report issued late last week by the US Department of Agriculture.

On Tuesday, the Association of Coffee Producing Countries said it would welcome clarification from the USDA over methodology of its latest coffee supply estimates. The association said its members were concerned over the USDA forecast, which it said differed vastly from recent production numbers released by some governments. "The market came down hard enough," said Merrill Lynch analyst Judith Ganes. "I think it over-reacted to the USDA figures."

At the Chicago Board of Trade, concern about tight supplies of soybeans sparked a sharp rise in prices. "Everybody is still nervous over supply, and the El Nino stories aren't helping either," said one floor trader.

On Tuesday, an official with the US National Oceanic and Atmospheric Administration said El Nino-related droughts were likely in some countries. "In Australia, we anticipate the dryness we're seeing is going to develop into a full-scale drought," Ants Leetma, director of the NOAA, said Tuesday.

Additionally, the private consultant Sparks Cos of Memphis, Tenn, was said to issue forecasts showing 1996/97 (September through August) soybean ending stocks at a razor-thin 115 million bushels and 1997/98 ending stocks at 123 million.

Current supplies have already dwindled to 20-year lows, and Sparks's new crop forecast is far below the government's latest of 240 million bushels. Nearly ideal growing conditions in the US Midwest were expected to limit gains this week, traders said. Most forecasters see warm temperatures and periodic rains for the week, traders said. "Everything is green and lush," said one floor trader.