Coffee Prices Set to Rise Further

November 15/The Business Times Singapore -- While coffee is a popular beverage all across the world, most people are not aware that price levels may start rising soon along with other soft commodities.

This is because global consumption levels look set to outpace supply, especially when production levels are forecast to drop in the months ahead -- all of which means that prices should go up further.

Already, latest statistics from the International Coffee Organization (ICO) show a steady run since October when prices climbed substantially especially in the Arabica category, the predominant coffee grown in Kenya.

Based on the new data, coffee prices rose during October with the monthly average of the ICO composite indicator price standing at 121.09 U.S. cents per pound compared to 116.40 U.S. cents per pound the previous month -- constituting an average price rise of 4%. And some analysts expect the price to average 135 U.S. cents per pound in the next quarter.

Not impossible, given that the levels of stocks in exporting countries such as Kenya for 2010 remain low while production falls are expected in Brazil and other major producing countries such as Vietnam where bad weather conditions may affect the quality of its crops.

Production in Brazil, the world's biggest coffee producer, is estimated to be 39 million tons in the 2009-10 season, against 45.99 million tons a year ago, said an analyst who added that most of the crop has already been harvested there.

According ICO data, Vietnam and Colombia had produced 16 million bags and 8.7 million bags each in 2008-09.

Colombia reported its lowest production level since 1973 in 2009 and does not seem to be in a position to return to its normal production level in crop year 2010.

Market observers said there is a risk that recent heavy rains may affect the quality of the crop as well as flowering of the crop in 2011. On the other hand, increased production is expected in Africa, Asia and Central America.

Preliminary estimates of opening stocks in producing countries puts it at around 16 million bags, which may be the lowest since records have been kept. Inventories in importing countries are currently estimated at around 26 million bags, the highest level recorded.

In Kenya a low opening inventory has forced officials at the Nairobi Coffee Exchange (NCE) to conduct auctions once every fortnight instead of the traditional weekly sessions.  

From the November 23, 2009, Prepared Foods E-dition