Arabica coffee price, at two-year low, 'to revive'

Arabica coffee prices, hovering near a two-year low, are to recover, buoyed by the prospect of a weaker Brazilian harvest next year, Commerzbank said although a leading analyst cautioned over the demand picture.

New York arabica coffee futures for March fell to 143.60 cents a pound on Thursday, the weakest since June 2010, and down by more than one-half from highs reached in May last year.

The drop reflects ideas of improved world supplies, with the International Coffee Organization this week estimating 2012-13 arabica production at 89.9m bags, a rise of 10.6% year on year.

'Prices to pick up'

Commerzbank said: "Besides a record harvest in Brazil," the biggest arabica grower, "there is also plentiful supply from other countries in Latin America," with output in Colombia, the second-ranked producer seen soaring 17.7%.

Indeed, there is "no shortage of arabica coffee there at present", the bank said.

However, arabica prices "are likely to pick up over the next few months", given the prospect in 2013 of an "off" year in Brazil's cycle of alternate higher and lower producing seasons, Commerzbank added.

"After all, the expectation that the next harvest in Brazil will be lower on account of the forthcoming low-yield year should soon be reflected to a greater extent in the price."

 Arabica vs robusta

However, the picture for arabica demand is nuanced by an ongoing switch to robusta beans, favoured not just because of lower prices, but also is the main ingredient in the soluble coffees popular in developing countries which represent the drink's key growth markets.

Demand prospects are "good" for arabica beans, said Carlos Brando, at Brazil-based coffee consultancy P&A Marketing.

"World coffee consumption is growing at a faster pace than the shift from arabica to robusta and many consumers who enter the coffee market via robusta-based soluble beverages end up by switching to arabica as they learn more about coffee."

'Robusta growth here to stay'

But it is robusta beans which have the strongest demand profile, he added.

"Consumption growth remains healthy in the world and is increasing faster in producing countries and emerging markets than in traditional consumers the US, the EU and Japan," Mr Brando said.

"With the major exception of Brazil, these developing markets consume mostly soluble coffee whose main ingredient is robusta coffee.

"Since the lower cost, more popular form of soluble coffee spray dried does not taste substantially different if more expensive arabicas are used in its production, the trends towards more robusta consumption and production is here to stay."

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