Coffee could gain aroma on lower Brazil crop

After having gained 58 per cent in the last 12 months, global coffee prices could steam ahead further on forecasts of a lower Brazilian crop over the next two years.

“Till recently, the Brazilian crop situation was unclear. But two weeks ago, we had reports that have cast a cloud not only over this year’s crop but next year’s also,” said AK Bhandari, a coffee planter and former President of the United Planters Association of Southern India.

Last week, Brazil’s coffee council reiterated its estimate for Brazil coffee crop of around 40 million bags (60 kg each) for the next two years.

Reports of the lower Brazilian crop pushed up coffee prices over 13 per cent in the last one month. On Thursday, Arabica coffee futures maturing for delivery in September ruled at $1.88 a pound, down from $1.925 at the start of the week. Robusta coffee, on the other hand, was quoted at $1,987 a tonne for delivery in November. It has dropped over $10 from last weekend.

“There is a mismatch in coffee demand and supply. The average consumption is rising 1.5 per cent every year for Arabica and 2.2 per cent for Robusta. On the other hand, production is declining,” said Bose Mandanna, a planter from Karnataka’s Kodagu district and former Vice-Chairman, Coffee Board.

The US Department of Agriculture has projected global coffee crop to be 1.5 million bags lower at 147.8 million bags in 2014-15 season starting October.

Some experts, including from the International Coffee Organisation, project a shortfall of 10 million bags, the widest in the last nine years.

“The problem with coffee is the lower projection for next season too,” said Bhandari.

“Brazil coffee initially experienced heavy rainfall and then a prolonged dry period. Both these weather vagaries have affected the crop. This will lower the crop by 4-5 million bags,” said Mandanna.

With prices topping $2 a pound for Arabica last week, coffee could head for levels of $2.40 and $2.50 soon.

“Once Brazil crop is harvested, prices could easily head to $3 levels around January-February,” said Bhandari. “Arabica prices could run to record within the next two years since input costs are going up,” added Mandanna.

Arabica coffee prices had surged to a record $3.73 a pound in 1974 before dropping to $0.40 in 2004.

“Coffee prices are moving sideways and are looking negative. Talks of prices rising to $3 levels are exaggerated,” said Ramesh Rajah, President of Coffee Exporters’ Association.

Robusta prices, on the other hand, are expected to rule firm and not drop below current levels. “Robusta has never dropped as badly as Arabica,” said Mandanna.

The global outlook should sound sweet for Indian growers.

“Arabica parchment prices could rise to ₹12,000 for a 50-kg bag in the next 12-24 months,” said Mandanna.

Currently, Arabica parchment is quoted at ₹10,300-10,800 at the farmgate. Robusta cherry, the one that is in demand for exports for use in instant coffee, is quoting at ₹3,400-3,600.

That brings the focus to the domestic crop, projected at a record 3.44 lakh tonnes by the Coffee Board for the 2014-15 season. Arabica will make up 1.09 lakh tonnes of the production and robusta the rest. Last year’s crop has been pegged at 3.04 lakh tonnes (1.02 lakh tonnes Arabica and 2.02 lakh tonnes Robusta).

“Though the Coffee Board is taking all steps to protect the Arabica crop, at least 40 per cent of it has been affected by the white stem borer,” said Mandanna, adding that it could be lower.

“The crop seems to be shaping up well but we will get a clear picture in October after the end of the monsoon. The borer menace will, however, have some effect on the crop,” said Bhandari.

“The Coffee Board’s projection could turn out to be right since most growing areas, barring those in Tamil Nadu, have received ample rainfall. Until a few weeks ago, these areas were reported to be affected by drought but that is not the case anymore,” said Rajah.

“Indian exports could gain if the Brazil crop turns out to be lower, though domestic consumption, of late, is on the rise,” said Bhandari.

“All is quite on the export front as it is off-season but we expect shipments to pick up towards the year-end,” said Rajah.

Provisional exports up to August 6 this year have been pegged at 2.08 lakh tonnes against 2.17 lakh tonnes during the same period a year ago.

Two-thirds of the coffee produced in the country is exported and shipments hold key to better prices for growers.