Tight supplies of mild arabicas in the world market are likely to persist until the situation in Colombia returns to normalcy, which is expected only after October 2009.
The current squeeze in supply of mild arabica continued to support firm prices in the market as a whole while leading to high differentials for Colombian milds and other milds, according to ICO.
According to it, increases in exports from certain producing countries have enabled importers to cover their needs.
Meanwhile, the pace of exports from Brazil is likely to decrease, since that country's 2009-10 crop will be lower than the previous one. This combination of factors is likely to maintain nervousness and uncertainty in the world coffee market in upcoming months, they said. However, exports from India have been showing a declining trend so far this year.
Meanwhile, ICO said t "new estimates just received indicate that Brazil's total production will be 39.1 million bags. Based on the performance of exports and internal consumption in Brazil during recent years, many analysts believe that the 2008-09 crop may have been closer to 50 million bags, compared to the official figure of 46 million bags, and that 2009-10 crop should be close to 45 million bags."
In April, prices of Colombian milds recorded their highest monthly average since February 1998. As noted by many traders, the industry has struggled to cope with a deficit of around 2.5 million bags from Colombia.
The difference between the Colombian milds indicator price and the New York futures market has increased from 9.88 cents per lb to 62.62 cents a lb since October 2008. The rocketing prices of Colombian milds, which continued during the first week of May, have had a ratchet effect on prices of the other groups of coffee with the exception of robustas. The monthly average of the ICO composite indicator price was up from 105.87 cents a lb in March to 111.61 cents per lb.
However, "the reduction in Colombian production does not, in itself, seem sufficient to explain the current price rises", ICO sources said.
They said attempts to find supplies of other milds to off-set the relative shortage of Colombian coffee were being hampered by limited export availability from Central America, which could be attributable not only to climatic problems but also to high costs of labour and fertilisers. "Falls in production are also expected in Peru and India", they said.
Vital support to supplies
Meanwhile, a major factor in the behaviour of prices on terminal markets has been the availability of coffee from other origins to fill the gap. Exports from Brazil and Vietnam have increased considerably and provided vital support to supplies. In the case of Brazil, exports from May 2008 to April 2009 were 30.1 million bags, as against 28.1 million bags for the same period in the previous year. In the case of Vietnam, exports for the first six months of crop year 2008/09 already exceed 10 million bags, representing a monthly average of 1.6 million bags.
Exports by all exporting countries in March 2009 totalled 9.3 million bags, bringing the cumulative total for coffee year 2008-09 to 48.9 million bags compared to 46.6million bags for the same period in 2007-08, an increase of 4.9 per cent.
This increase in total exports, which is attributable mainly to the growth in shipments by Brazil and Vietnam, seems to provide an opportunity to rebuild stocks of Brazilian Naturals and Robustas in a number of importing countries.
Despite the economic crisis, world coffee consumption, the ICO claims, remains dynamic even at present. World consumption has been supported by the growing domestic consumption in exporting countries, particularly Brazil, while demand in traditional markets in developed countries remains relatively stable. Meanwhile, the growth rate of consumption in emerging markets may decelerate as a result of the turbulence in the world economy, it said.
Source : Business Line