Anticipated higher production in Brazil during the current crop year 2008-09 may drag down the coffee prices in the shorter term in all exporting markets including India. But market fundamentals will continue to favour firm prices at the global level in the longer term, as higher output in Brazil should cover both Brazil’s sizeable domestic consumption and its export requirements, while taking into account the need to maintain a sufficient level of stocks to cushion against the anticipated fall in production for 2009-10, said International Coffee Organisation (ICO) in its latest report released on Friday.
During the current crop year, Brazil is expected to harvest around 45.5 million bags. As Arabica coffee plantations have a characteristic of biennial crop cycle, Brazil is expected to witness a huge cut in production during the next crop year 2009-10.
“Production by other countries (including India) can only contribute towards maintaining a supply balance if price levels permit investment in the upkeep of coffee farms,” according to Nestor Osario, executive director of ICO. Meanwhile, in exporting countries, prices of agricultural inputs continue to soar and labour recruitment becomes increasingly scarce and costly, Osario added.
He also said, “Since the price of oil and oil products are reaching new record levels, with consequent increases in the investment costs of coffee growing, the supply of coffee will only be sufficient to meet demand if price levels remain firm.” However, the slump in coffee sales in the auction conducted by Indian Coffee Trade Association (ICTA) on Thursday continued due to higher prices. According to auctioneer J Thomas and Company, Arabica Plantation coffees on offer remained unsold as seller’s price indication were higher than the buyer’s interest. Although the prices were higher by Rs 75 – Rs 100 per 50-kg bag, the auctioneer said the Robusta Parchment continued to receive good support from the exporters.
Of the total quantity brought for the weekly auction by two auctioneers, J Thomas and Company and Forbes, only around 20% were sold due to higher prices, sources added.