Coffee prices hit record high

Robusta coffee in London has surged 72 percent and Arabica in New York has climbed 19 percent in the past year. Brazil, which produces both, has a biennial coffee-production cycle for its Arabica trees. This year's bumper crop of 41.6 million bags will be followed be a reduction of up to 8 million bags, according to early estimates made on the basis of recent climactic conditions, Nestor Osorio, executive director of the London-based ICO said, citing findings by Brazilian agronomist Luiz Moricochi.

"Brazil has one year of a high crop followed by one low crop because of the stress in trees, and this has been the high year,'' Osorio said. "This suggests that this balance between supply and demand will be maintained or it will be fragile in terms of supply.''

Coffee for November delivery gained $29, or 2.1 percent, to $1,438 a metric ton at 3:16 p.m. in London on Euronext.liffe. Prices have gained 47 percent in the past year, reaching a six- year high of $1,618 on Sept. 5.

Robusta coffee has risen this year partly on a smaller-than expected crop in Vietnam, the world's biggest grower of the beans used to make instant coffee and espresso, and after stockpiles were damaged by water at warehouses in Italy last month. Both the robusta and the Arabica markets may come under further pressure from rising Brazilian consumption, Osorio said.

"Brazil has done a very important campaign and in 10 years they've doubled their internal consumption,'' he said. "This is a very significant market fact because it has an impact in terms of the supply that goes to the importing countries.''

`Managing the Equilibrium'

The International Coffee Organization forecasts a 2 percent increase in global coffee consumption to 7 million tons this year and a 1.5 percent increase in the next ten years.

"If we continue with this trend of a 1.5 percent increase in consumption per year, in 10 years the world will need 145 million bags and today they don't exist,'' Osorio said.

"For the first time in history we have a balanced situation,'' he said. "We have to manage this equilibrium because the history of coffee is one of a huge overproduction and then a concern to go out and try to find the consumers.''

Arabica coffee for December delivery rose 1.3 cents, or 1.32 percent, to $1.033 a pound at 10:36 a.m. on the New York Board of Trade.

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The coffee market was very volatile during the month of August, particularly with the explosion in Robusta prices, according to ICO executive director Nestor Osorio.

The International Coffee Organisation (ICO)'s indicator price for Robustas reached a level of 78.68 US cents/lb on 22 August 2006, the highest price recorded in the last seven years.

"The average of the indicator price for Robustas in August represents an increase of 104 per cent in relation to the average for 2005, " said Osorio.

This rise continued during the first two weeks of September.

Osorio said that the main reason for the price recovery is the cutback in exports from Vietnam, which is experiencing problems related to climatic conditions. In addition, supplies of Robustas from other regions, particularly in Africa, have also been reduced.

In addition, certified stocks in the London futures market (LIFFE) have been reduced, and there has been a decline in the quality of some of the Robusta stocks held in free port warehouses, particularly in Trieste Italy due to mould formation.

"There has also been a reduction in exports from India, which is one of the main Robusta producing countries," said Osorio. "On the basis of the latest information provided by CONAB establishing Brazilian production at 41.57 million bags for crop year 2006/07, my estimates of world production have been revised upward to around 122 million bags."

Osorio said that demand remains constant both in exporting and importing countries.

"In the course of this month, I participated in the Coffee Congress held in Belo Horizonte, Minas Gerais in Brazil, during which I had occasion to present an analysis of the market situation in the last five years, together with an indication of future prospects, focussing on the need to continue efforts to promote increased consumption, an area in which Brazil has played an exceptional role," said Osorio.

"I emphasised the importance of establishing policies aimed at maintaining equilibrium between supply and demand, particularly in order to prevent increases in production as a result of the expansion of coffee areas."

In conclusion, Osorio said that the increase in Robusta prices has had a significant effect on the evolution of the market during the month of August and the first few days of September. A shortage in supplies to the market may be one of the principal causes of this increase in Robusta prices.

The differential between the indicator price for Robustas and that for Other Milds, which was 60.81 US cents/lb in January 2006, has continued to fall. In August it was down to 38.14 US cents/lb compared to 40.51 cents in July and 42.92 cents in June.

This situation may continue until the arrival of new Vietnamese coffee from crop year 2006/07 beginning in October 2006.