* Coffee prices fall but supply crunch looms on horizon
* Analyst sees prices rebounding in 2nd half of year
* Sub-par harvests, rising consumption to lead to deficit
By Maja Wallengren
GUAXUPE, Brazil, March 21 The latest retreat in
arabica coffee prices signals the tightly supplied coffee market
is not running out of beans yet, but the outlook for sub-optimal
harvests and faster consumption indicate that by next season it
could come close.
A tour of coffee areas in the world's top arabica grower,
Brazil, showed a good but sub-optimal crop on the way. But in
Colombia, output has dropped sharply and poor harvests have
become almost a chronic problem.
On the demand side, things remain tight, with stocks in the
United States and Europe totaling just about a month's worth of
Despite the tight market, prices of coffee futures on ICE
have been hovering near a 17-month low hit on March 12.
"There is a bit of supply available but you have a deficit
year coming so we have to be awfully careful here and not be too
bearish," said Eric Nadelberg, Senior Vice President at
Jefferies Bache, LCC in New York.
"There is not a lot of coffee and as we move forward this
will become more acute," he told Reuters.
Despite record exports last season, European stocks of
arabica and robusta are at their lowest since 2005/06, as
consumers down more cups. Stocks there stood at just over 10
million bags by end-December, with 4.2 million bags in the
world's top coffee consumer, the United States, at the same
There have been two schools of thought over how coffee’s
fundamentals will influence the price of arabica beans -- more
expensive than robusta. Arabicas are typically roasted and
ground for brewed coffee while robusta is used in instant
coffees or in blends with arabica.
Coffee market bears focus on expectations of a large
Brazilian crop. Bulls point to the series of ever-smaller crops
coming out of Colombia and other arabica producers in Central
America and East Africa, a trend likely to continue.
On top of that, low certified arabica stocks at New York's
ICE exchange which remain close to their lowest in 11 years at
around 1.6 million bags.
Until now, the bears have dominated, as the benchmark
arabica contract KCc2 trading on ICE Futures U.S. is down more
than 40 percent from its 34-year high at $3.0890 per lb, reached
in May 2011.
Nadelberg takes the view that the market will rally as
production lags demand in the United States and Europe.
"We have a deficit year and we should trade higher coming
into the main roasting season again. I look for it to get tight
coming back to about the 3rd quarter, and by the 4th quarter the
market should rally back," he said.
Brazil coffee output from 2000 link.reuters.com/ruw85s
Graphic on Colombia harvests: r.reuters.com/zad78r
Colombian production, exports: r.reuters.com/wet48r
COLOMBIA'S "WORST CROP EVER"
Better weather could have made the difference between a good
and a great coffee crop in Brazil and put Colombia back on track
after a run of poor crops. A few million bags more from both
would have left the market much more comfortably supplied.
Brazil's is "not going to be the mother of all crops," said
John Wolthers, a veteran coffee trader with exporter Comexim in
the main port town of Santos. Comexim's crop estimate is among
the highest of its private sector peers at 55.8 million bags.
Two damaging spells of drought during the critical flowering
phase and again as beans were filling out, were enough to kill
off hopes of a bumper or record crop.
The 2012/13 harvest comes in a so-called 'on year' in
Brazil's biennial cycle which causes output to rise one year and
fall the next as trees recover. That is why producers are using
the 2010/11 harvest as the comparative reference for this crop.
The Brazilian government's crop agency, Conab, forecasts the
crop at a median 50.6 million 60-kg bags while private
forecasters see between 52 and 55 million bags, less than that
picked in 2010. For a table of forecasts, see: [ID:nL2E8EEDS0]
Conab's number comprises of 37.7 million bags of arabica
beans and 12.9 million bags of robusta beans.
In Colombia, little improvement is seen after four harvests
in which output was suppressed by heavy rain, leaf rust and
pests, negating the effects of tree renewal programs.
"The harvest is not good, we continue to have many problems
and in the best case we may get as much as last year," said
producer Hernan Castillo. The mitaca or mid crop in the 2010-11
cycle was one of the smallest in the last 50 years in Colombia.
A drive through the La Union coffee region confirmed reports
from a Colombian Coffee Federation representative that many
producers had uprooted and replanted trees afflicted by rust
disease. The fungus weakens trees which lose foliage and it has
spread at an alarming rate in some southern provinces of late.
"This is the worst crop ever. The main crop is gone, and the
mitaca is bad, so as far as the 2011-12 coffee year is concerned
it’s going to be hard for Colombia to get to even 7.5 million
bags," said a trader with a large exporter in Bogota.
Prior to its current problems Colombia used to produce
between 11 and 13 million bags - a now-elusive level coffee
importers have mourned ever since.
Easing coffee prices which could boost consumption further
still and the certainty of a smaller Brazilian crop in the
following 2013/14 crop year offers little reassurance that an
awry supply and demand balance will invert any time soon.
"It's a difficult situation," Jeffries Bache's Nadelberg
(Additional reporting by Marcy Nicholson in New York; Editing
by Peter Murphy and David Gregorio)
((Peter.Murphy@thomsonreuters.com)(+55 61 3426 7025))
Keywords: COFFEE SUPPLY/
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