Coffee Prices to Stay Firm

Prices of coffee in key international markets are expected to stay firm on the short term, after an overall increase in the cost of agricultural and mineral commodities.

Analysts said the trend would further be supported by a sizeable drop in export volumes of the commodity following hitches in several producer countries including Brazil.

A market report by the International Coffee Organisation (ICO) showed that exports during the first nine months of the coffee year 2007/08 fell by 4.3 per cent to 71.29 million bags-triggering a tight market condition that upholds prices on demand factors.

Kenya is among export countries that suffered slumps in production of the 2007/08 partly due to a spell of cold weather over several growing areas that also triggered incidents of Coffee Berry Disease (CBD).

Challenges have also emerged for several other countries including the world’s largest producer, Brazil, whose opening stocks for the crop year 2008/09 slumped to 11 million bags-the lowest level recorded since the 1980s.

The effect triggered by the imbalance is already being felt in the market, with consumers emerging the losers on increased retail prices of the commodity at the end of the chain.

In July, international prices of coffee braved a downward correction despite the ICO composite indicator price falling from $142.99 per pound to $132.17 per pound. The average prices for July however remained firm at $132.78 per pound compared to $130.51 per pound in June.

The ICO composite indicator prices captures trends in key futures markets such as New York and operations at the Nairobi Coffee Exchange (NCE) are also largely reflective of the changes in such key markets.

“This firmness reflects the general increase in prices of agricultural and mineral commodities. In response to these rising price levels, retail prices have been going up in most importing countries,” ICO executive director Nestor Osorio said.

The organisation warned the export volumes may not stabilise in most countries because of growing cost of production triggered by higher in put prices. “The weakness of the US dollar in relation to some currencies and the increase in the costs of inputs and labour are obstacles to the development of coffee farming in many exporting countries.

In these circumstances, it is unlikely that the volume of world production will be as large as some sources suggest  for crop year 2008/09″ he said.

Due to the production situation, the organisation said it would maintain its production estimates for the 2008/09 crop season at 128 million bags while its estimates for the 2007/08 crop year would also remain unchanged at 118.1 million bags, a fall of 6.6 per cent compared to crop year 2006/07.

“Even though this is a high production year in the two-year Brazilian crop cycle.The supply response to current price levels is unlikely to be significant, particularly in Central America where production costs are relatively high and in some African countries where the coffee industry has experienced difficulties in recent years. In addition, opening stocks for crop year 2008/09 are expected to be at their lowest levels for many years.” said Mr Osorio.

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