International Coffee Rallies, Local Brew Piggybacks

International coffee prices, which touched the season's low of 105 cents/lb on July 14, have increased dramatically in the last few days to touch a new three-month high.

Coffee closed at 130 cents/lb at the New York Coffee Sugar and Cocoa Exchange (CSCE) on August 3, gaining more than 18 cents/lb from its July 27 close of 112.10 c/lb. London's Liffe registered a $75 increase on August 3, to close at 1,700 $/pmt for the September contract. Prices at Liffe were wallowing around the 1,500s for a couple of weeks before this sudden spurt.

Market analysts say that this sudden increase in prices is due to the turnaround in the perception of the big institutional funds. The funds were till recently selling, but have now started buying futures contracts.

 

"The international trade in coffee," said a leading exporter, "is based more on technicals rather than fundamentals. The funds have decided that it is a good time to buy coffee. And so the prices have gone up. They have the money to drive the market. But a correction is expected soon."

And true to form, Liffe quotes are down to 1,695 $/pmt for September and 1,665 $/pmt for November as of August 4, 5 pm (IST).

Prices at Cofei, India's coffee futures exchange, which adhere to international prices, have also gone up. Arabica plant A's November contract closed at Rs 107.05 a kg on August 4, after being down at Rs 92.50 on July 14. Spot prices, too, have gone up appreciably and are now Rs 110 a kg for Arabica plant A.

Domestic traders were supposed to cut retail prices from Rs 190 a kg for pure coffee powder to Rs 170. Low international prices were cited as the reason for the cut. But, the recent uptrend is bound to mess up their domestic price calculations.

"It has been observed that whenever Indian retailers bring down prices, the international prices shoot up. It has been regularly happening," said Allanasons' M C Appaiah.

This has added to the perception that coffee markets are volatile and unpredictable. And though international prices have gone up, retailers are not expected to hike prices. "They can't keep changing their prices daily. It will lead to confusion in the minds of consumers," he said.

Some market analysts, on the other hand, feel that the parity level for Indian coffee prices to international levels is around the 130-140 Rs/kg level.