Robusta coffee hits 3-year low

Brazil , Commodities , Food Oct 28, 2013 No Comments

RobustaLiffe January robusta coffee was up $7 or 0.4 percent at $1,586 a tonne in slim volume of 2,149 lots on Wednesday after earlier touching $1,572, the lowest level since September 2010, depressed by a bumper harvest in Vietnam, the top producer of the variety.

This is a typical example of the cyclical nature of commodity prices. After enjoying quite profitable coffee prices, including a historic peak in February 2011, the coffee-producing countries were encouraged to renew, expand and better maintain their plantations.

The results of the renovation programme of the past few years are coming through and are now visible everywhere, including East Africa. But it is especially impressive in Brazil, the world number one provider will have the best harvest for an intermediate year (47.5 million bags of 60 kg), and Vietnam, the leading producer, also expects a record production (27 to 29 million bags) of robusta coffee.

Robusta was hot earlier this year amid rising demand for instant coffee and fears that the supply of beans would be limited. Prices jumped almost 17% between mid-June and mid-July. But now, traders coming back from Asia found that plantations size had further increased and that there were more than plenty of coffee cherries.

Vietnam is just starting to harvest its crop and analysts believe that the likelihood of a big harvest means prices have even further to fall. Ample rainfall earlier this year has helped ease concerns of shortages. There will be a new global surplus of robusta coffee, like arabica, this year.

Consumption hasn’t picked up in Europe or the United States and has decreased in the emerging markets. This is why, despite the rust epidemic in Central America, arabica prices dropped 62% since its peak in 2011, and why robusta, though cheaper, is also down by 38%.

December arabica coffee futures on ICE edged up 0.05 cent or 0.04 percent to $1.12 per lb, near September’s more than four-year low of $1.1105.

The arabica market remains a market in significant oversupply,” one London-based coffee futures broker said.

It’s a market that will remain under pressure,” he added. “Brazil is still under-hedged, and I think probably we could get down to $1.00.”

Coffee traders said underlying demand for arabica, especially from large consumer groups, remained firm, but supplies from Latin America were weighing on the market.

The price difference between arabica and robusta – which hit $1.89 at its peak in 2011 – has fluctuated by about 40 cents a pound during the past four months.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

Leave a Reply

Your email address will not be published. Required fields are marked *