Smallest coffee crop in 19 years to fuel market rally

Coffee production in India is set to tumble to a 19-year low as dry weather wilts plantations in Asia's third-largest grower.

Output will decline at least 30 per cent in the harvesting season starting from October 1, compared with a record 350,000 tons a year earlier, according to Nishant Gurjer, a member and past chairman of the Karnataka Planters Association. That would mean a crop of 245,000 tons, the lowest since 1997-98, according to state-run Coffee Board data.

A smaller harvest will cut Indian exports, supporting arabica prices that entered a bull market last month amid concern that global supply will continue to shrink on El Niño-induced crop losses in South America and Southeast Asia. Shipments from India, which exports more than 70 per cent of its production, may fall in 2016-17 from a year earlier, Gurjer said.

  "Blossoming has not been very good because rains have been quite a failure," Gurjer said. "It's not a very comforting scenario. It will be minimum of 30 per cent drop in production. Could be more, could be less depending on how the weather pans out in a week to 15 days."

Bull market

Prices of arabica beans, favoured by Starbucks Corp., entered a bull market on ICE Futures U.S. in New York last month as adverse weather from El Nino threatened to shrink output in Brazil and Colombia, the top producers. The contract for delivery in July closed at $1.215 a pound on Wednesday. Robusta futures in London, headed for the third monthly gain in the longest rally since April 2014, settled at $1,573 a ton on Wednesday.

India produces mainly robusta coffee, which needs a lot of water. Robusta production may drop by at least 25 per cent to 30 per cent while high temperatures are threatening arabica with white stem borrower disease outbreak, Gurjer said.

"Where there is no irrigation robusta has been damaged, and I would say quite badly," Anil Kumar Bhandari, president of India Coffee Trust and a former member of the state-run Coffee Board. "There will be damage to arabica because of the intense heat."

According to the meteorological department, Karnataka, the biggest coffee producing state, received 52 per cent below-average rainfall between March 1 and April 20. Showers were 51 per cent below average in Kerala, while the shortfall was 81 per cent in Tamil Nadu, department data show. India's coffee exports climbed 13 per cent to 319,734 tons in 12 months ended March 31 from a year earlier, the board said on April 1.