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Coffee May Trade Near Current Price for 4 Years
Coffee prices are likely to stay between 85 cents and $1.30 a pound for Arabica beans for three to four years, before demand exceeds supply enough to raise prices, the head of Colombia's National Federation of Coffee Growers said.
"What we're seeing is that the market has changed, with a greater synchrony between supply and demand,'' federation General Manager Gabriel Silva said in an interview in his office in Bogota. "Demand is growing at a good pace, which is important to sustaining the natural expansion of coffee in specialized economies such as that of Colombia.''
Colombian coffee growers have avoided increasing planting after a glut in 2000 and 2001 led prices to slump to a 30-year low at the end of 2001. About 800,000 hectares of coffee are grown today in Colombia, compared with 1.1 hectares before the crisis, while production has been little changed, Silva said.
Current prices allow growers to maintain production but don't create windfall profits which would be an incentive to increase planting, said Silva. Strengthening local currencies in Brazil and Colombia, the world's first and third-biggest coffee exporters, have also reduced the effect of higher coffee prices, according to Silva said.
Coffee today fell 3 cents, or 2.7 percent, to $1.0725 on the New York Board of Trade at 11:17 a.m., compared with the low of 42 cents in December 2001.
The decline in prices from as much as $3.15 in May 1997 `has led to better practices in our coffee farmers such as improving efficiency, rather than increasing cultivated area,'' he said.
Demand Pickup
Demand for coffee is growing at an estimated 1.8 percent, after growing steadily at 1 percent for years, according to Silva.
Revenue of Colombia's coffee growers was reduced by 295 billion pesos ($122 million) in the crop year between Sept. 2004 and Sept. 2005 because of the strong peso, Silva has said. The Colombian peso has gained 15 percent since the beginning of 2004, while the Brazilian real has gained 34 percent.
Colombia's coffee production will have a "moderate" decline of 3 percent this year from 2005 to between 11.1 and 11.3 million bags, according to Silva.
"One of the main reasons is that heavy rains caused some roads to be closed down, which led to logistical problems in getting the coffee to its destination,'' Silva said. It is normal for production to vary as much as 10 percent from year to year, he said.
Colombia's potential coffee production is estimated at 12 million bags, Silva said.
Colombia's National Federation of Coffee Growers is responsible for about 34 percent of total coffee exports from the South American country.
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