Arabica coffee prices rise 92% in 4 months on Brazil drought

This year, Arabica coffee prices are likely to stand at 150-160 cents/pound (lb). Currently, the price is 194 cents/lb, a rise of 92 per cent compared with 101 cents/lb in November 2013. The rise in prices has been significantly high in the last 15-20 days.

Analysts say at current levels, some correction could be expected, adding prices might stabilise at about 150 cents/lb.

Prospects of a smaller-than-expected crop in Brazil, the world's top coffee producer, owing to prolonged dry weather, led to the rise in prices. In 2012, the price of the other mild arabica variety (Indian arabica coffee comes under this category) stood at 186.47 cents/lb, before falling to 139.53 cents/lb in 2013. Compared with 237.21 cents/lb in January 2012, arabica prices fell 32.44 per cent to 125.97 cents/lb in December 2013.

  “The market has moved up significantly in the last month. The Brazilian crop has been affected by a severe drought. Though the extent of the damage to the crop isn’t known, the supply of beans will be lower than last year. However, we expect prices to fall about 10 per cent in the short-to-medium term,” said Ramesh Rajah, president, Coffee Exporters’ Association of India. He feels this year, prices won’t fall below the 150 cent-mark. Owing to the low supply of arabica and the higher prices, robusta consumption would improve, he said.

As a result of the recent rise in Arabica prices in global markets, farm gate prices in the major growing region of south India rose 61 per cent—from Rs 6,500 a bag (of 50 kg each) of washed arabica in December 2013 to Rs 10,500 a bag.

Exporters, however, aren’t benefiting much from the rise in prices, as they had made advance bookings for their stocks at the prices prevailing earlier. “Unless exporters had held back their stocks and booked containers at the current rate, they wouldn’t see much gain,” said Nishant Gurjer, a coffee exporter and former chairman of Karnataka Planters Association.

He added, “It is too early to say how much the shortage in Brazil this year will be. The damage to the Brazilian crop due to drought is real. We will know the exact position in about a month. If the damage is significantly high, the prices of arabica will be about 180 cents/lb this year.”

Through the last couple of months, Brazil’s coffee-growing regions have seen one of the worst droughts in decades. As a result, the coffee crop was damaged, leading to a rise of about 50 per cent in arabica prices.

In a recent report, Rabobank had scaled up its price forecast to about 140 cents/lb for the first quarter of this year and 150 cents/lb for the second quarter. Below-average rainfall and high temperatures across the key producing states of Minas Gerais, Sao Paulo and Espirito Santo had hit the coffee crop, with limited irrigation adding to the woes, the report had said. While it was too early to predict potential losses, Brazil's arabica yields and quality would be constrained during this season and the next, Rabobank had said.

Meanwhile, slow sales in Vietnam and the adverse weather conditions in Brazil have also raised robusta prices. Rabobank says with just 40 per cent of Vietnam's crop sold so far, prices will ease through the next few months, as more robusta becomes available. The bank revised its robusta price forecast to $1,800 a tonne for the first quarter of the year and $1,950 a tonne for the second.