The Hindu Business Line : Coffee exporters, buyers grapple for stocks

IS coffee on a bull run or leading to a bull "trap"? That is the question which is foremost in the minds of those in the trade, as growers and buyers grapple with the current situation where coffee prices are hovering around five-year highs.

"It is hard to get coffee in the local markets. As a result, exporters are finding it difficult to source their needs," an industry source said.

"Sellers seem to be holding coffee expecting higher prices. Therefore, we exporters are having to cancel our contracts," said Mr Milan Shah, a coffee exporter from Bangalore.

According to the source, quite a few cancellations of export contracts have taken place. "It is better to pay $100 (Rs 4,375) a tonne penalty and cancel an export contract rather than lose $250 (Rs 11,000) a tonne by fulfilling it," said the sources.

Coffee prices are up on a projected shortage of other milds, under which Indian coffee falls. The International Coffee Organisation has projected a seven million 60-kg bags fall in coffee production during 2005-06, starting June, to 106 million bags. Output is seen mainly falling in Brazil and Vietnam, world's largest robusta producer. Vietnam is currently going through one of its worst drought periods with at least 1.5 lakh hectares being affected.

"Exporters are forced to pay prices higher by 10-15 per cent than prevailing global prices. That is because domestic roasters are prepared to pay higher price. Therefore, it makes sense for exporters to either cancel their contracts or roll it over to a future date," said Mr Bose Mandanna, a grower and Coffee Board's former vice-president.

Arabica parchment A last week was quoted at $3,030 (Rs 1,32,300) a tonne f.o.b Cochin against $2,950 (Rs 1,28,800) last week. Robusta cherry ruled at $1,500 (Rs 65,500) against $1,300 (Rs 56,750) last week.

At the farm gate level, arabica parchment A is quoted at Rs 5,000 for a 50-kg bag against Rs 3,400 two months ago. Robusta cherry AB has almost doubled to Rs 3,000 during the period.

In the auctions held by the Indian Coffee Traders' Association last week, arabica parchment A was quoted at Rs 130 a kg.

"Growers don't seem to be holding on to stocks. Traders and speculators seem to have them," the sources said.

"If growers are getting good prices, it is good. It will help them clear their dues with the banks. Growers owe around Rs 1,300 crore totally to the banks," Mr Mandanna said.

"Coffee is currently going to the market from people who have bought the stocks and kept it, and not from growers," he said.

What is worrying the industry, as a whole is that the prices have gone up too fast. "On March 10, robusta futures in London jumped by $200 to cross $1,000 a tonne. Though prices have slid a bit, they are still hovering around that level," the sources said.

On Monday, May robusta futures in London was quoted at $996 a tonne, while arabica futures in New York opened at $2,930.

"Speculators seem to be taking an aggressive position in the market and it could be a trap. But when these people start selling, the fall could be sharp," said Mr Shah.

"Some are holding on to their stocks expecting arabica parchment to hit Rs 6,000 a bag. But there are chances that the prices could fall," the sources said.

The fears seem to be in place as the robusta futures price on the National Multi Commodity Exchange have come off the peaks touched on March 9. Then, May futures touched Rs 7,226 a quintal. Since then, it has dipped and on Monday, it closed at Rs 6,000.

"Speculators and traders seem to be falling in a trap. They seem to have put all eggs in one basket. They can sell some and keep some. That will save them," said Mr Mandanna.

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