Coffee market 'to return to surplus', says ICO

New York's best-traded December coffee contract fell to its lowest for more than two years as the International Coffee Organization acknowledged that a record harvest would return the market to surplus for the first time in at least five years.

The ICO, in its first forecast for 2012-13, pegged world production at 146m-148m bags, an increase of some 9% year on year, reflecting an "on" season in Brazil, which has alternate higher and lower production years.

"The majority of this increase [in world output] can be attributed to the on-year in the biennial cycle of Brazil," the top producing country, the organisation said.

And output at this level, a record, will be enough to outpace consumption, the London-based group added, if declining to make a detailed forecast for coffee use, beyond it being larger in 2012 than last year, when it came in at 139m bags.

'Move into a surplus'

"The coffee market will move into a surplus of supply," the ICO said, if forecasting only a limited dent to values from the easier availability.

"The supply-demand balance should remain relatively tight. Any impact on prices is likely to be modest given the need to replenish stocks, especially in producing countries."

ICO data show world inventories closing 2011-12 at 25.7m bags, thin by historical levels, with stocks ending 2002-13 at 72.8m bags.

Nonetheless, coffee futures lost ground. In London, the best-traded January robusta contract closed down 1.2% at $1,952 a tonne, the contract's lowest finish since February.

In New York, December arabica beans ended 2.5% lower at 150.90 cents a pound, the contract's weakest finish since August 2010.

Roasters vs producers

The drop in values also defied supportive comments by Brazil's Conselho Nacional do Café (CNC), which forecast that roasters looked poorly-placed in an ongoing tussle with producers for control of the market

"Roasters soon will have to return to the market with greater willingness to purchase, since we're starting the season of greatest consumption, with the approach of winter in the northern hemisphere," CNC executive president Silas Brasileiro said.

However, producers, had relatively low supplies running up to the 2012 harvest.

"What one sees in the market with regard to the behaviour of coffee growers in their sales is far from being a retention," as some commentators say, Mr Brasileiro said.

"Producers in fact are, with great skill, managing better their marketing."

He also flagged the growth in speculators' net short position in New York coffee futures and options to a historically-high 17,860 contracts as of last Tuesday.

Large net short positions, while indicative of negative short-term sentiment on prices, can longer-term support values, given that closing such holdings means  stoking buying pressure.

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