‘Unemployment, consumption in importing countries yet to be assessed’.
The crisis in the global financial markets is expected direct effect on coffee supply.
“Credit restrictions and the lack of liquidity caused by the crisis could lead to a reduction in supply while it is expected that the forthcoming winter season will help sustain the demand. While coffee fundamentals remain in a tight balance, the price outlook in the short run is likely to continue to be dominated by the instability of world financial markets,” Nestor Osorio, executive director of the International Coffee Organization (ICO) said in his monthly newsletter.
The first few days of October witnessed a sharp drop in prices as the ICO composite indicator price fell below $110 per lb, representing a 17.7 per cent decrease compared to the level at the beginning of September.
Coffee prices fell further in September, with the ICO composite indicator price at $126.69 per pound compared to $131.14 in August. The average of the ICO composite indicator price for coffee year 2007-08 was $126.67 per lb.
“The crisis in the global financial markets is having a direct effect on commodities in general, including coffee, despite the coffee supply and demand fundamentals remain unchanged,” said Osorio.
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On consumption, he said, “The preliminary estimate of world consumption during calendar year 2007 is around 124.6 million bags compared to 121.2 million bags in 2006, an increase of 2.9 per cent.”
“The effect of the financial crisis on unemployment and consumption in importing countries cannot yet be assessed. There is likely to be a change in consumption patterns, with coffee being increasingly consumed in the home. Despite the present economic turbulence, estimates of world consumption in 2008 still indicate a figure of around 128 million bags,” he added.
The US Dollar has continued to strengthen while commodity prices in general are falling.
The present crisis in the financial markets appears to be having repercussions on the coffee market, especially in view of the credit restrictions and lack of liquidity affecting major trade operators.
“Credit restrictions also affect producers, who are likely to be forced to reduce their expenditures on investment and maintenance, with a possible reduction in the supply of coffee in the medium term. Inflation levels are also going up in exporting and importing countries. In the absence of any new information, I am maintaining my estimate of world production during crop year 2008-09 around 131 million bags,” said Osorio.