The growing demand for coffee in the international market, coupled with declining global stocks, has guided prices to a 13-year high. According to fresh data released by the International Coffee Organisation (ICO), prices recorded a substantial increase in June with the monthly average of ICO composite indicator price rising from 128.1 cent per pound in May to 142.2 cent, the highest monthly average since June 1997.

Price volatility also increased considerably with that of the ICO composite indicator rising from 3.6% in May to 7.6% in June, an increase of more than 110%, indicating the marked nervousness of the market during the month. Even in July, prices have not softened till date from the levels of the previous month.

Except on July 6, ICO composite indicator price recorded above 150 cent per pound on all the days from July 1-15. It was 148.26 cent on July 6, well above the average price in June.

Speculative movement on part of investment funds accentuated this price volatility, which can be accounted for mainly by reduction in supplies of mild arabicas. Increase in prices was steeper in the case of arabicas, particularly Colombian milds, with widening in the differentials between prices of this group and other three groups.

There are, however, indications that production levels are gradually increasing in Colombia and several other producing countries including India, which is the sixth largest producer in the world, raising hopes for marginal decline in prices in coming months.

Private estimates have confirmed an output of 50 million bags during 2010-11 in Brazil, the world’s top coffee producer. Based on this, the total production for the crop year 2010-11 should be between 133 and 135 million bags, ICO executive director Nestor Osario said.

Coffee production in Vietnam, the second largest producer, is estimated at 16-18 million bags while Indonesian production is pegged at 10-11 million bags. India and Ethiopia are expected to produce around five million bags each.

With new crop arriving in the market, experts said prices may marginally decline after two months. However, the monthly average of ICO composite indicator may not fall below 135-140 cent per pound.