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Media/Press

Scarcity to secure top-grade coffee a huge premium

26 February 2010 (Agrimoney.com)

Highest-grade coffee beans, which have been achieving three time the price of average fruits, will continue to attract a hefty premium despite a growing surplus in arabica supplies, Fortis Nederland has said.

The bank has, in its first forecast for 2010-11, predicted that global production of arabica beans will exceed demand by nearly 7m bags, compared with 1.4m bags a year before.

The forecast reflects an "on" year for the crop in Brazil - the world's biggest producer - which operates on a two-year cycle of weaker and stronger harvest, while economic malaise will continue to hold back consumption.

However, last year's "persistently heavy" rains, which provoked erratic flowering patterns in coffee shrubs, will entrench a shortage of high-quality beans, as growers struggle to sort crops of mixed maturity.

Quality vs quantity

"This unusual rainfall is more a problem for coffee quality than its quantity," Fortis said.

"This has already started to impact the market," with buyers paying up to 500 cents a pound for the best quality beans compared with a price of about 130 cents a pound for New York March futures.

The premium market is also likely to receive "significant support" from a shortfall of high quality beans from Colombia, the second-ranked arabica producer, which has been dogged by shortage of rainfall in coffee-growing areas.

"The dry weather has produced a strong flowering in the central coffee region but the lingering El Niño climatic effects may prevent this from translating into a strong harvest," Fortis said.

The bank added: "The quandary for arabica buyers this year will be the difficulty in sourcing high-grade Brazilian beans… Scarcity of top-quality beans is likely to remain an issue."

'Supply is tight'

The report comes a day after the International Coffee Organisation raised its estimate of a global coffee consumption, including robusta beans, this year by 2m bags to 132m bags.

"Supply is tight," Nestor Osario, the ICO's executive director said.

Commerzbank said the data supported views that Thursday's fall in arabica prices to a four-month low of 126.6 cents a pound was prompted by technical factors rather than supply and demand dynamics.

"We view the current price as too low and expect a price increase to 150 cents a pound during the course of the year," the German bank said.

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