The Hindu Business Line : Coffee growers take to `consignment' deals

"CONSIGNMENT" deals are the in-thing in coffee currently, showing growers' confidence in the market's bull run. The deals took place even before the coffee prices rebounded this week to touch a six-month high in New York trade on Thursday.

"Consignment" deals are ones where growers keep their coffee in warehouses or curing houses rather than at their place. Sales take place whenever the grower needs money and at the rate that prevails then. Such deals also help in preserving the quality of coffee, which could otherwise be affected by keeping them at the producer's place.

"Growers willingness to go for consignment deal shows they are prepared to wait for the right price. Also, there is no pressure on them to repay their loans now," said Mr Ramesh Rajah, President, Coffee Exporters Association of India.

According to Mr Bose Mandanna, a planter and former vice-president of Coffee Board, the deals have kept coffee moving. "Coffee is coming into the market as prices have improved. No grower wants to keep coffee at home," he said.

"Growers think it is possible for arabica parchment prices to touch Rs 4,500 for a 50-kg bag at the farm-gate level," Mr Mandanna said.

Currently, arabica parchment is ruling at Rs 4,050-4,200 a bag, while robusta cherry is quoted at Rs 2,025-2,200 a bag. This is against Rs 3,700 for arabica parchment and Rs 1,475-1,500 for robusta cherry during the second week of December.

"Coffee prices are likely to be firm in the short-term. Temporarily, there is tightness in supply," Mr Rajah said. However, the rates could dip in the long term, particularly since a huge Brazil crop is in the offing. Brazil is seen producing over 40 million 60-kg bags of coffee during the season starting June.

Though coffee has begun arriving in the market, the volume is lower than the same period last year. "Arrivals are improving slowly," Mr Rajah said.

"The crop is likely to be lower than the post-monsoon estimates made by the Coffee Board. This is because of the yellow rust disease in the plants. The rust has been caused by high humidity, while excess rainfall has resulted in loss of foliage in plants," Mr Mandanna said.

The Coffee Board has estimated the production this season (October 2005-September 2006) at 2.82 lakh tonnes against post-blossom estimates of 2.94 lakh tonnes and 2.75 lakh tonnes last season. However, the trade and plantation industry feel the production could be even lower.

"The main picking is on but growers say it is lower," Mr Mandanna said.

On export prospects, Mr Rajah said demand from buyers abroad was not strong given the current tightness.

"There is not much demand as roasters are looking to buy cheap and also at Brazil's crop. They also feel Indian prices are being quoted higher and quotes are above international parity. Some trading has taken place but volumes are thin," he said.

According to Coffee Board statistics, exporters have got permits to ship 1,507 tonnes in the first five days of the year against 1,362 tonnes the same period a year ago.

On the other hand, exporters are quoting around $2,400 a tonne f.o.b for arabica parchment and $1,440 for robusta cherry. In the global market, arabica for March delivery closed on Wednesday at $1.17 a pound, up 6.2 per cent over the previous day. In London, robusta March delivery was quoted at $1,253 a tonne in early trade on Friday against Thursday's closed of $1,265.