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Tuesday, Aug 06, 2002

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Global coffee market awaits early signals

G. Chandrashekhar

MUMBAI, Aug. 5

AFTER giving up hopes of recovery in the current season in the wake of continuing low prices, poor demand growth and large stocks, the world coffee market has started to look at early signals for the next season that may possibly indicate a change in outlook.

Even as global coffee output during 2002-03 reaches a record 120 million 60-kg bags, the market has already begun to crystal gaze crop prospects for 2003-04. Will worldwide supply trail demand next year with the inevitable drawdown of stocks and some recovery in prices?

On current reckoning, several factors suggest a reduction in global coffee output next year, while continuing low prices are expected to lead to lower production in many origins, according to International Coffee Organisation (ICO).

For instance, Vietnam has announced its intention to stabilise production at around 10 million bags. In addition, there is the possibility of reduction in the availability of low-grade coffee pursuant to the decision of ICO members.

Obviously, Brazil holds the key to the level of gross coffee output next year. Climatic conditions in the origin (both frost and drought), impact of biennial cycle and economics of production are all factors that need to be considered. It is believed that if the Brazilian 2003-04 crops falls to around 30 million bags, then for the first time since 1997-98 world demand may exceed supply, with reduction in stocks of importing countries.

However, it is too early to assume this situation would materialise. For the market to take cognisance of the likely situation and supply concerns are reflected in prices, a firm evidence of declining stocks may become necessary. Obviously, the coffee market in 2003-04 will be supply driven.

World demand, on the other hand, appears to have reached a stable level where consumption in importing countries amounted to 80.1 million bags in 2001, which makes demand in importing countries just under one million bags higher than in 2000.

Since domestic consumption in exporting countries in calendar year 2001 can be estimated at 26.6 million bags, total world consumption rises to 106.7 million bags at the end of 2001, which is 2.1 million bags higher than that at the end of 2000, ICO noted.

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