Although the second half of Colombia’s coffee harvest this season has been “pretty strong,” the prospect of increasing prices is not looking good, according to the International Coffee Organization’s (ICO) Head of Operations, Jose Sette.
“The first part of the 2011/12 season was quite poor, while the second half was pretty strong. We are still awaiting the numbers, but overall we expect the year will be slightly above the year before,” said Sette. “We are holding out hope that the 2012/13 harvest will improve. El Niño is always a concern, it was the big factor in the problems of recent years, but so far is relatively weak.”
Over the last four years problems with weather and disease in Colombia caused huge increases in prices, with prices in May 2011 hitting $3.05 per pound, the highest in more than 30 years. This year markets have barely responded to Colombia’s supply problems, with arabica coffee for December delivery hitting a five-week low at $1.59 a pound last week in New York. Growers from Brazil have stockpiled supplies, refusing to sell after arabica beans on ICE Futures which trades on future commodities, fell 29% this year, according to Bloomberg news.
Coffee in warehouses monitored by ICE Futures surpassed two million bags in September, the highest in more than two years. On one hand, this can be blamed for the low prices because of the risk of over-supply, with analysts estimating a five to six million bag surplus in 2012/13, according to the Financial Post.
On the other hand this refusal to sell is at least keeping the prices level, according to Sette. “What appears to be going on in Brazil is there is a large crop coming in since the middle of the year. The Brazilian farmers are reluctant to sell at the low prices, so they are holding on in the hope that the prices will improve. In theory they are helping to keep the prices the same.”
However demand for arabica coffee has remained low, while demand for the lower-quality robusta beans is increasing. “The arabica prices were sky-high over the last few years with the problems in Colombia,” said Sette, “As the roasters tried to find other producers, their prices went up too. The roasters started to look at Central America and Brazil for arabica beans and the prices in those countries started to go up. As arabica supplies started to dry up, the roasters bought robusta instead,” explained the ICO chief.
“Most coffee that we drink is a blend of beans, arabica and robusta. So as the arabica supplies started to dry up, the roasters started increasing the percentage of robusta in their blends. Each individual market has its own characteristics, but in general terms robusta went up from making 35% of world exports to making up between 38% and 40%,” Sette told Colombia Reports.
Coffee demand has increased consistently for decades, and commentators are hoping that China, India and other emerging markets will get involved making global demand for coffee grow by 2% to 3% a year for the next decade. Demand for coffee is also fairly consistent in the major coffee consuming countries. “This provides a major insulation from economic and political crisis around the world,” reported Inside Futures.
But now that coffee production levels are looking good again, it still doesn’t mean that the demand for arabica beans will go back to previous levels. Sette said that the roasters in the past have been happy to leave their blends as they are after a change in recipe. “We don’t know, but in the past these changes in composition in the blends have shown the tendency to stay that way.”