Monday, December 17, 2018
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Arabica coffee prices 'to hit $3 a pound'

Arabica coffee prices are poised for a return above 300 cents a pound, with the setback to Brazil's crop, the world's biggest, from drought a "multi-year problem", a leading analyst said.

Judith Ganes-Chase warned that the dent to Brazil's 2014 harvest prospects was not the only damage from an unprecedented drought early in the year in the country's coffee belt.

"It is a definite" that 2015 output will fall further given the curtailed growth in the new vegetation needed to bear next year's cherries.

That would mark three successive years of decline in Brazilian coffee production for the first time in 50 years.

With impacts from tree stress potentially showing up further ahead too, "this is a multi-year problem," said Ms Ganes-Chase, a former analyst at Merrill Lynch and Shearson Lehman who runs her own analysis group, J Ganes Consulting.

Quality worries too

With the decline in Brazil's coffee quantity exacerbated by a drop in quality, the draw down on the country's inventories of export-grade beans will be acute.

"People buying are expecting a certain level of coffee quality – they are not going to get it," she told

The impact will be to send coffee futures, which have already soared more than 60% this year to more than 180 cents a pound in New York to more than 300 cents a pound.

"You would certainly think so," she said, adding that the sooner higher prices arrive, "the healthier it will be for the market, as it will allow roasters to ration supplies, and farmers to make adjustments to increase the quality and quantity of production".

Vietnam factor

The analysis is supported by Mark Nucera, a consultant analyst who claims to advise 13 US billionaires, who forecast that the shortfall will increase demand for inventories in Vietnam, the top producer of robusta coffee.

"Due to the enormous price differentials between arabica and robusta coffee, Vietnamese coffee should be the number one place for commercial users to make up" a global supply shortfall e estimated at 4-6m bags.

However, the extra supplies from a bumper Vietnamese harvest have been offset by a poor crop in Indonesia, which "should have 3m less bags to export year on year during this harvest compared to the last one".

Mr Nucera foresees robusta coffee futures exceeding \$3,000 a tonne by September, some 40% above the level at which London's September 2014 contract was trading at on Thursday.

'The 800-pound gorilla'

However, other commentators that spoke too took a more cautious line over price roses.

One US analyst said that "there is some talk that producers in Vietnam have 40% of their harvest sitting around, equivalent to about 12m bags.

"The real 800-pound gorilla in the market is the size of Brazil's harvest, which is a big unknown at the moment. That is the real driver of prices."

'Still early days'

In Europe, an analyst said that price prospects "basically depend on what you think the number is for the Brazilian crop this year.

"If it was to come in at 50m-51m bags, you would not need to run down stocks at all."

And if the Brazilian robusta crop meets speculation of a strong harvest, potentially of 18m bags, that wold provide scope for the country to keep more of these beans for its own consumption and "export that much more arabica".

The analyst added that while it was valid to raise concerns over next year's harvest, thanks to the setback to tree growth, it was "still early days" to be talking of another very poor crop.

Brazil's official Conab crop bureau will later on Thursday unveil revised estimates for the country's coffee production this year.

The full write-up of's interview with Ms Ganes-Chase can be read here.

Brazil's woes mean coffee rally has much further to go
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Contributing Editors

  • adrian muller has conducted seminars for the chicago board of trade, including a key series in 1999 which cautioned about a top in the equity markets (see his article “top experts and statistics on the dow”). adrian muller has appeared on cable tv financial programs with analysis on the futures markets and equity market directional forecasts. he has been quoted in barron's, the wall street journal, and futures magazine.

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