Coffee prices in the international market are expected to touch new highs in the near term on the back of tight supply coupled with speculation buying before a possible correction in the next six to nine months.
“Due to supply concerns in Brazil and Columbia, two major producers of arabica, prices are expected to reach $2.90 a pound in the near term,” Ramesh Rajah, president of Coffee Exporters’ Association said.
Though speculation buying along with holding back of stocks are fueling such price rise, arabica prices will see correction in the next six to nine months, he added.
Meantime, robusta variety of coffee may also firm up in the future due to higher consumption demand and speculation buying.
“Though robusta will not see much upside, it may reach $2,400 a tonne in the next three months before a correction,” Rajah said.
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Along with supply constraints, falling inventory level will support this trend. According to the International Coffee Organisation, stocks registered with New York’s coffee exchange have fallen sharply in the last one year.
As physical beans from Colombia and Central America are being traded at a premium to New York exchange, traders are unlikely to give their produce to warehouse of the exchange.
“In the wake of the overall demand-supply scenario along with increase in consumption, prices of both variety of coffee have an upward bias in the near future,” Jawaid Akhtar, chairman of Coffee Board of India said. He, however, declined to give any specific figure saying that it would depend not only on demand-supply scenario, but also on the overall market sentiment. Meantime, price difference between arabica and robusta variety has touched an all-time high level after 1997 in the recent time, which may prompt planters to shift to arabica variety.
“Though a bigger price difference should trigger shifting to arabica variety, higher gestation period of four to five years of arabica will discourage planters to opt for this variety,” Marvin Rodrigues, vice-president of Karnataka Planters’ Association said.
He also said that growing arabica was difficult as compared to robusta due to higher labour requirement and other factors.
Despite high international prices, coffee retailers are not ready to pass on the price rise to end consumers yet.
“We know that prices are at all-time high. However, retail prices are not expected to follow suit as we procure most of our produce from captive estates,” K Ramakrishnan, marketing head of Cafe Coffee Day said. He also said retail prices had to follow a stable cycle for sound business growth.
Robusta coffee hits 2-1/2 year high, demand strong
Reuters adds: Robusta coffee futures climbed to a fresh 2-1/2 year high on Monday as the market retained its strong upward momentum, dealers said.
Cocoa futures on Liffe rose to 7-month high as the market eyed the deepening crisis in top grower Ivory Coast. White sugar eased slightly as physical demand remained slow following the recent run-up in prices. ICE markets were shut on Monday for US Presidents' Day.