Weekly Coffee News

Jan. 30 (Bloomberg) — Brazil’s share of the global coffee market may fall as much as 5 percentage points to 35 percent as suppliers withhold stocks and seek above-market prices, Ricardo Tristao of brokerage Tristao Cia. de Comercio Exterior said.

Arabica coffee from Brazil is trading at about a 15-cent premium relative to New York futures, compared with a usual discount of 15 cents, Tristao said in a Jan. 27 telephone interview from the Isle of Man, where the Vitoria, Brazil-based brokerage has a unit. Arabica for March delivery fell 0.7 percent to $2.1595 a pound at 10:05 a.m. on ICE Futures U.S. in New York.

“Brazilian coffee is a bit uncompetitive right now,” Tristao said. “Producers are withholding some of the coffee, thinking that towards June you’re going to have higher prices.”

Coffee has plunged 25 percent in the past five months in New York partly because of expectation growers in Brazil, the world’s largest producer, will reap a record crop. The price of Brazilian coffee currently exceeds that of countries in Central America, which are still selling at a discount, Tristao said.

Futures may rise to more than $3 a pound if there is a medium to severe frost in Brazil during winter, which runs from June to September in the Southern Hemisphere, Tristao said. If the weather is less severe, the price is likely to remain between $2 and $2.30 a pound this year, he said.

Exports

Coffee exports from Brazil fell to 2.56 million bags in December from 3.13 million bags a year earlier, the country’s Coffee Exporters Council, known as Cecafe, said. Exports may drop to 2.2 million bags in January from 2.79 million bags a year earlier, according to estimates from Rio de Janeiro-based brokerage Flavour Coffee. A bag weighs 60 kilograms, or 132 pounds.

Brazilian growers will harvest 49 million to 52.3 million bags this year, exceeding a record of 48.5 million bags harvested in 2002, crop-forecasting agency Conab said in a Jan. 10 report. Brazil currently supplies about 40 percent of the world’s coffee, including consumption within Brazil, Tristao said.

Coffee harvesting in Brazil runs mostly from April to September

Tanzania cut its coffee production forecast for the 2011-12 season 18 percent after a drought reduced yields, the Tanzania Coffee Board said.

Production for this marketing season, which started on July 1 and ends on June 30, may fall to 37,000 metric tons from an earlier forecast of 45,000 tons, Adolph Kumburu, the board’s director general, said by phone today from Moshi, northern Tanzania. The revised forecast is 34 percent lower than 56,247 tons produced in the 2010-11 season, according to the board.

“We have revised our forecast because we realized less than our anticipated output by the end of December,” he said. “The Northern region and Kagera in the northwest were affected by a drought last year.”

East Africa was hit by the worst regional drought in six decades last year, cutting farm production.

Harvesting for the season closed in most growing areas except the high-altitude northern zone, and in the Mbinga and Mbeya areas in the south, he said.

Tanzania, which consumes less than 3 percent of its annual output, according to the Eastern African Fine Coffee Association, reaps the crop from April through August, while its marketing season runs July through June while sales normally close in April or May.

The nation grows both the robusta and arabica varieties in the western Kagera region, while the northern Kilimanjaro and southern regions mainly produce arabica.

Arabica accounts for about 75 percent of output, with robusta making up the rest.

The relatively weak response of the coffee market to another poor year for Colombian coffee production looks a sign that the weak start of the year for bean prices looks set to continue.

The drop in Colombian coffee output to 7.8m bags – the lowest in more than 30 years, and well below growers’ initial forecast of 9.5m bags – might have been expected to lift prices.

However, the decline in output from the second-ranked producer of arabica beans, the type traded in New York, “has not had a pronounced effect”, Societe Generale said.

While prices of so-called Colombian mild beans, high quality coffee also grown in countries such as Kenya and Tanzania, “have shown some strength” relative to other arabica varieties, “this appears to only have had an effect on localised markets, but not the global market at large”, the bank said.

At broker J Ganes Consulting, veteran soft commodities analyst Judith Ganes Chase said that the failure of Colombia mild prices to react so strongly this season was “mostly be cause traders were not caught off guard by the small crop, having expected it from paying closer attention to the weather”.

The Colombian downturn reflected, besides plantation downtime stemming from a national replanting programme, heavy rains that encouraged disease and cut sunshine levels.

‘Downside risk to prices’

The dearth of reaction was indicative of a coffee market which “is comfortable with the current supply and demand balance”, SocGen analyst Michael Haigh said.

Indeed, prices of near-term lots have lost ground over further ahead ones, an increase in the so-called “bear spread”, and signalling limits on investors’ willingness to pay up for immediate supplies.

“This is a reflection of expectations of a strong Brazilian harvest as [Brazil] enterers an ‘on’ year,” Dr Haigh said.

Brazil, the top coffee grower, has alternate seasons of higher and lower production, 2012-13 expected to be a higher-output year.

“Looking ahead, with the global market poised to receive large Indonesian and Brazilian production in the coming months, and assuming conservative global demand growth, we see downside risk to prices as more likely than upside risk.”

Ms Ganes-Chase said that “even though physical market may be limited this season, having the assurance that there is a strong chance of more plentiful supplies next year could crimp rally attempts” in futures.

Seasonal update

The comments come ahead of a key seasonal period for the coffee market, as growers in Brazil gain a better idea of their crops, which faced setbacks from frost and dryness last year.

“Generally, by February farmers have a fairly strong indication on the upcoming Brazilian harvest,” Ms Ganes-Chase said.

Coffee for March closed 0.4% lower at 216.60 cents a pound, among its second-lowest finish since December 2010.

The newly developed five coffee seed varieties may revive the ailing crop in the regions of Arusha and Kilimanjaro where it once thrived.

An official statement from the Ministry of Agriculture indicates that all new coffee seed varieties are of the Arabica form, the type mostly grown in the Northern Zone as opposed to Robusta which thrives in Bukoba.

The new coffee seeds, said to be able to withstand harsh climate conditions, resist diseases as well as take shorter period for their fruits to ripen, are among the-soon-to-be launched lineup of 26 new seed varieties for a total of nine different crops and the newly approved kernels are expected to be initially used in the next farming season of 2012-13.

Permanent Secretary in the Ministry of Agriculture, Food Security and Cooperatives, Mohammed Muya who unveiled the new seeds in Arusha recently stated that the new improved seeds varieties will mark another revolution in the country’s agriculture sector because they have been made to be drought and disease resistant, take shorter ripening time as well as boasting double and triple yields per acre.

“The seeds are being put into production immediately so that farmers may start benefiting from the improved kernels this new season and we can confidently say from now henceforth Tanzania is to record bumper harvests and enhancing food security in the country,” said Muya.

The new seeds produced after years of research have just been approved by the Ministry of Agriculture through the National Seed Committee (NSC) which met in Arusha recently.

“The National Variety Release Committee (NVRC) had initially advised the ministry on the new seed variety and was the expert force behind the endorsement,” the PS explained.

The seed varieties include nine new seed varieties for maize, the country’s main staple, five types of coffee (Arabica) seeds, four new seed types for tea, four others for cassava, one for barley, one for millet and another new seed type for beans.

The new varieties are products of extensive research projects that were being conducted by the government owned research centers such as the Iringa-based Tea Research Institute of Tanzania (TRIT), Tanzania Coffee Research Institute (TaCRI) of

Moshi, the Agricultural Research Institute (ARI-Uyole) of Mbeya and the Naliendele Agriculture Research Institute (NARI) of Mtwara.

Private firms that participated in the research programme include Suba Agro-Training and Engineering, Pioneer Overseas Corporation, Monsanto Tanzania Limited, Meru Agro-Tours and Consultants and Tanzania Breweries Limited.

The production of the new seed varieties will be undertaken by various kernel making firms, most of which are located in Arusha, under close supervision of the Ministry and be distributed throughout the country by the Agricultural Seed Agency (ASA).

Since the country’s independence over 50 years ago, agriculture has been the major economic bedrock for most Tanzanians. The sector recently received a boost through the new agrarian revolution ‘Kilimo Kwanza.’

The sector accounts for about half of the national income, three quarters of merchandise exports and is source of food and employment opportunities to about 80 percent of Tanzanians whose population has reached 42 million.

Arabica coffee prices – what does 2012 hold?
By Agrimoney.com – Published 28/12/2011

Arabica coffee, as traded in New York, is on track to fall some 8% in 2011, a better performance than managed by most other soft commodities, but a poor result compared with the rise of more than 75% in 2010.
Besides the weaker global economic outlook, prices have been held back by a bumper crop for an “off” year in Brazil, the top producer, where arabica output has alternately higher and lower years.
But output in Colombia, the second-ranked arabica producer, has – again – disappointed, thanks to poor weather.
Brokers below give their forecasts for 2012.

Commerzbank
“Arabica coffee… should in our opinion remain above 200 cents a pound in 2012 – a high price level, historically speaking – even if the peaks of 300 US cents a pound seen in 2011 are likely to be a thing of the past.
“High-quality arabica beans in particular could remain in short supply, due to the continuing precarious situation in Colombia.
“A positive factor is that Brazil is poised for a high-yielding crop year in the biennial cycle and Brazilian beans are now also approved for delivery to the New York exchange.
“[But] Brazil had to struggle with a drought between May and September, which hampered the growth of the beans to the extent that no new record will be possible in the next harvest which begins next May
“The fact therefore remains that the global coffee market has been in deficit for years, and at best the forthcoming 2012-13 season could end with supply and demand roughly in balance.”

Goldman Sachs
“We expect lower global 2011-12 production (on Brazil’s off-year of the arabica plant’s two-year cycle), strong emerging market demand growth and low beginning stocks to keep prices elevated.
“While Brazil is expected to have [had] a record off-year harvest in 2011-12, we see risk to our short-term [three-month] price forecast as skewed to the upside:
- Colombia has revised its production estimate lower for 2011 for the second time in two weeks on disease outbreak and adverse weather
- recent torrential rains in Central America have likely caused damage to both the local crops and infrastructure
- forecasts for a return of the La Niña weather pattern this winter creates downside risk to Brazilian production.
“Over the medium term, we expect a continued supply response to the current high coffee prices during the 2012-13 crop year with a large “on-year” harvest in Brazil under average weather conditions.”

Morgan Stanley
“With supply constrained through the start of the Brazilian 2012 harvest in April, demand strength will continue to determine price resilience.
“Strong demand year to date has reduced [New York exchange] certified inventories to their lowest levels in 20 years.
“Disease pressure and poor transportation infrastructure continue to disrupt the [Colombian] industry.
“With seasonal supply traditionally provided by Colombia in the coming months, we expect that inventories will continue to draw through the first quarter of 2012.
“While weather will still be key, we still believe that increased investment is needed before Colombia will be able to meaningfully grow its production.”

Rabobank
“Coffee prices are forecast to fall in 2012 due to the large harvests expected in Brazil and Vietnam. But diminished stocks will keep risks skewed to the upside.
“Unlike after past coffee price rallies, we do not foresee a collapse of prices, as it will take a couple of seasons to replenish stocks.
“We anticipate the 2011-12 coffee season will be characterised by razor-thin stocks and high risks. But in our view this is a turning point in a decade-long trend of shrinking supply.
“Our base case of slowing economic growth in the US and European Union is not expected to have a measurable impact on coffee demand. We also anticipate consumption growth in origin countries to remain robust.
“The Brazilian real is expected to appreciate in 2012, and this generally supports the arabica market. Brazil accounts for approximately 40% of total global arabica output and half of total arabica exports.”

A prolonged spell of dry weather has led to a scaling back of coffee crop estimates for top producer Brazil.

The consensus amongst international coffee trade houses for Brazil’s coming 2012/13 crop is around 55 million to 58 million 60-kg bags, down from previous expectations in excess of 60 million.”It’s unquestionable that numbers have been reduced and we’re not going to get the 60-65 million bags that maybe we could have got if we’d had exceptionally good weather through September, October, November,” a European commodities fund analyst said.

“55-60 million bags is where most people are looking.” Brazil’s coffee production rises and falls from one year to the next in a biennial cycle.The forthcoming 2012/13 season is a higher output year, and production may now struggle to significantly exceed the last on-year crop in 2010/11, which the US Department of Agriculture pegged at 54.5 million bags.

“It’s very so-so,” said Jarbos Diogo Perreira, who grew up in coffee farming and has about 100 hectares of coffee near the northern Sao Paulo town of Sao Sebastiao de Paraiso.”As the dryness went on for quite a while, not all of the flowers took hold, so I doubt we’ll get the same production as two years ago,” he added.

Local Brazilian exporter Terra Forte has forecast production at 52.5 million bags, because although the first critical flowering phase was excellent, the exporter said that many of the blossoms had aborted as trees were weakened by a prolonged dry spell this year and bouts of frost.”In our tour of coffee areas in Brazil in October, we noted that leaves had fallen out of the dryness, even if blossomings had been good,” said Kona Haque, an analyst at Macquarie Bank, which has reduced its crop estimate to 56-58 million bags from 60-61 million.

Increased pruning of branches this year will also come at the cost of reduced output for at least a season.

Growers have undertaken more trimming to boost production in the next few seasons, hoping that prices will stay firm for a few years

Arabica coffee futures ended higher Monday as the market rebounded after touching a 1-year low, with the rest of the softs complex dawdling in modest business as players’ focus seemed to be slipping away ahead of the year-end holidays.

Volume traded on ICE Futures US soft commodity markets were all averaging over 40 percent below the 30-day norm near the end of Monday’s session, Thomson Reuters preliminary data showed.”I think people are starting to wind down and are in a holiday mode,” Nick Gentile, the chief trading official in commodity fund Atlantic Capital Advisors in New Jersey, said.New York’s March arabica coffee futures gained 4.35 cents, or 2 percent, to finish at $2.1945 a lb, having plumbed a one-year low for the second position contract at $2.1235.March robusta coffee on Liffe was down $19 to end at 1,878 a tonne.

“Coffee should be supported around $2.10 but these are still pretty elevated prices,” Rabobank analyst Keith Flury said, adding that industry buyers appeared well covered and so were under little immediate pressure to buy.

Coffee prices have been dragged down recently along with many other financial markets by general risk aversion among investors linked to the eurozone debt crisis.Gentile said the debt and budget crisis in the EU and the United States remained “in the back of everyone’s minds.” Diminished prospects for the coming coffee crop in top producer Brazil following a prolonged spell of dry weather have helped to limit losses in bean values.New York’s March raw sugar contract rose 0.01 cent to close at 23.09 cents per lb, while the March white sugar futures on Liffe fell 30 cents to end at $599.40 per tonne.

The decline in the sweetener has been driven partly by large crops in several producing countries in the northern hemisphere including the European Union, Russia and India.

“Rosy global production prospects in key producer-exporter states, with the exception of Brazil, are weighing on prices,” Barclays Capital said in a market note on Monday.India produced 4.6 million tonnes of sugar between October 1 and December 15, the Indian Sugar Mills Association said on Monday, up 17.9 percent year-on-year.

“We’ve seen a sharp correction since mid-October.

It seems fair value to us (now) especially given concerns about Brazil’s crop next year.

There is not too much downside from here,” Flury of Rabobank said.Brazilian sugar output fell this season for the first time in more than a decade due to bad weather conditions and a lack of investment in cane replanting.

Most leading analysts say a full recovery would take at least two years.

Cocoa futures were lower in choppy trading as the market struggled to establish a clear trend after last week’s sharp rally from a three-year low.March cocoa on ICE lost $31 to finish at $2,070 a tonne, while March cocoa on Liffe fell 26 pounds to close at 1,343 pounds a tonne.

Dealers noted the run-up last week had been fuelled largely by short-covering by investors and funds.

Speculators switched to a net long position in NYSE Liffe cocoa futures of 277 lots in the week to December 13, exchange data showed.

A week earlier, speculators had held a net short in cocoa of 2,695 lots

Coffee farmers across the country are losing millions of shillings through theft of the crop from farms and factories.

Cartels are exploiting the sharp rise in prices on the international market to make a killing.

In Central and Eastern, stolen coffee is sold to private millers but in Nyanza and Western, the crop is being smuggled into Uganda in large quantities.

Chepkube is a small trading centre on the Kenya-Uganda border in Bungoma County which was the focal point of coffee smuggling during the 70s boom.

Many smugglers became instant millionaires from the astronomical prices triggered by a drought-induced crop failure in Brazil, the world’s largest producer.

Today, farmers claim top businesspeople, security and provincial administration officials have jumped onto the gravy train.

The cartels hire middlemen to buy or steal coffee from farmers. Coffee on farms and in transit from factories to millers is not spared.

Some farmers are now forced to hire extra security or spend sleepless nights at the farms and factories to guard their crop.

But even this has proved futile, as was tragically shown in Bungoma last week. Seven people were killed as farmers tried to foil a robbery at Namang’ofulo factory near Sirisia town.

The chairman of the society, Mr Samuel Malaba, said coffee worth nearly Sh1 million was stolen. Three guards were killed by the armed thieves.

Angered by the deaths, farmers hunted down and killed three people believed to have been part of the gang. (READ: Editorial: Stop coffee berry theft)

An angry crowd

The seventh person was shot dead by police as they protected Bungoma West DC Paul Merinyang’ from an angry crowd when he went to the factory eight hours after the theft.

The protesters accused the district security team of laxity. This is not the first time coffee-related deaths are being reported in the county. Earlier this year, five people drowned in the River Malakisi while smuggling coffee into Uganda.

Bungoma police boss Amos Cheboi said they are investigating reports that a district commissioner and senior police officers are involved in the illegal trade.

A farmer, Mr Danston Masafu, said coffee is usually smuggled into Uganda in trucks, pick-ups and motorbikes and asked why police were not intercepting it despite reports.

A boda boda operator at Lwakhakha border point who sought anonymity said ferrying a bag of coffee across the border earns him Sh1,500.

Police, he said, did not stop coffee smugglers as long as they got their share. “We work very closely with the police. It’s a huge syndicate. Everyone benefits at the end of the day. Those behind it are rich and well connected,” he said.

A farmer who sought anonymity said coffee berries were now being stolen from the farms. “We are living in fear. It is better to uproot the coffee than be tormented day and night,” he said.

In Central, farmers blame the government for licensing private millers and allowing them to buy directly, fuelling thefts.

“I’ve never seen so much theft in my whole life as a coffee farmer,” Mzee Peter Maina Gikonyo, 68, of Murang’a's Thangaini Society said as he kept vigil at a factory at night.

Society secretary John Kariuki said four of the eight factories falling under the society had been robbed of coffee worth millions of shillings.

“Night guards are tied up, sometimes beaten or even killed and beans packed in lorries and taken away,” said Mr Kariuki.

“We also blame the Coffee Board of Kenya for issuing transport and milling licences without vetting applicants,” said farmer Margeret Waithira Mwangi of Kirere village in Kigumo.

The provincial administration and police have been accused of being slow in responding to calls by farmers who witness theft cases.