Financial Daily from THE HINDU group of publications
Wednesday, Oct 19, 2005
Climate & Weather
Agri-Biz & Commodities - Coffee
Gloomy global weather buoys coffee prices
Bangalore/Chennai , Oct. 18
COFFEE prices have perked up following reports that erratic weather conditions could have harmed the crop in the Central America. The rise comes after the prices witnessed a fall since March. The rise has infused a bullish sentiment among growers here, who expect to start harvesting their crop late November.
According to Mr Ramesh Rajah, President of Coffee Exporters Association of India, prices for coffee have increased by 10 per cent during the past one month with arabica parchment rising to Rs 3,600 for a 50-kg bag and robusta cherry to Rs 1,200 a bag. These prices are, however, lower from the Rs 5,000 a bag for arabica parchment and Rs 3,000 for robusta cherry witnessed in March.
While Hurricane Stan, which caused heavy rains and mudslide in countries such as Guatemala, Honduras, El Salvador, Costa Rica and Mexico last month has affected the soon-to-be-harvested coffee crop and manufacturing facilities, growers here feel that the dry spell in Amazon, considered to be the worst in 60 years, could also have some impact on the Brazilian crop going forward.
The ICO composite indicator prices, which breached the mark of sub-75 cents a pound in mid-September, have bounced back to 78.79 cents a pound by end-September. Coffee prices in New York shot up by 4.5 per cent to a six week high last week. The coffee futures for December delivery rose 4.45 cents to $1.041 per pound on the New York Board of Trade (NYBOT), the highest since September 1.
Growers also expect the volatile coffee prices to stay firm and increase further going forward. "The firmness in prices will continue as there will be a shortage of arabicas in the world market," said Mr AL.RM. Nagappan, Chairman, Karnataka Planters Association (KPA). Moreover, the fact that trading interest has shifted back to coffee from the crude oil is fuelling speculation, he said.
Planters such as M.G. Dattatreya of Chikmagalur feel that the prevailing drought in the Amazon basin would also impact to certain extent the Brazil's 2006-07 crop. Brazil's 2005-06 crop, which ended recently, stood at 33.33 million bags, representing a drop of 14 per cent compared to the previous year's 39.27 million bags.
The global increase in prices would also reflected in the domestic prices. "I expect the prices to touch Rs 4,000 a bag of arabicas from the current Rs 3,600 over the next couple of months when the new crop would come into the market," he said.
According to Mr Bose Mandanna of Karnataka Coffee Brokers, the crop is at the ripening stage and the earliest arrival would be in the last week of this month or first week of November.
Mr Rajah said the prices would be firm only in the medium term. "In the long term, prices may decline from next July as the next Brazil crop is projected to be huge," he said.
Mr Nagappan feels that the country's arabica output is likely to be lower than the initial estimates due to the widespread infestation of white stem borer in the main growing areas of Karnataka.
But Mr Mandanna said arabica would be over one lakh tonnes as projected by the Coffee Board in its post-blossom estimate but robusta may be lower as the crop had been hit by heavy rains. "The arabica crop has escaped the menace of white stem borer as heavy rains provided a natural solution," he said.
Coffee Board's estimates had pegged the 2005-06 crop size at 2.94 lakh tonnes, higher by 7 per cent over previous year's final estimates. The arabica output is seen increasing by two per cent to 1.056 lakh tonnes in 05-06 as compared to the final estimate of 1.034 tonnes in 2004-05. The robusta output is projected to increase by around 10 per cent during 05-06 to 1.884 lakh tonnes as against the estimated 1.72 lakh tonnes in 04-05.
Coffee Board sources, when contacted, said a review of the crop situation would be available towards the end of the month. Officials have begun taking stock of the crop situation and they will have to analyse it before projecting the expected crop size. "There maybe a slight decline due to heavy rains," they said.
"The crop this year may be 10 per cent higher than last year," Mr Rajah said and added that exporters had begun receiving enquiries.
According to Coffee Board statistics, permits have been issued for exports of 1.46 lakh tonnes during January 1-October 17 compared with 1.97 lakh tonnes during the corresponding period a year ago. Actual shipments reported to the board was 1.34 lakh tonnes (1.94 lakh tonnes.)
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