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 Agrimoney.com.
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".
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
"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.
However, other commentators that Agrimoney.com 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
"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
'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 Agrimoney.com's interview with Ms Ganes-Chase can be read here.