The lower coffee harvest estimates for Brazil, which have
prompted a surprise revival in arabica futures prices, may not be quite so
bullish after all, a leading analyst said, saying a production uptick may have
only been delayed.
New York arabica coffee futures, which many analysts
expected to drop below 100 cents a pound this year, have instead proved a
surprise gainer, touching a four-month high of 122.60 cents a pound last week
for March delivery.
While the contract has eased back since to standard at
117.20 cents a pound in morning deals on Wednesday, down 1.7% on the day, it
remains some 6% higher in 2014 so far.
The improvement reflects sharply reduced expectations for
Brazil's coffee harvest, the world's biggest, this year to levels well below the
60m bags or more that some forecasters have pencilled in.
Conab, the official Brazilian crop bureau, last week pegged
output at 46.53m-50.15m bags, while Swiss-based coffee trader Volcafe has estimated
the harvest at 51m bags, citing tree stress, and a programme of heavy tree
pruning farmers have undertaken to boost future productivity while prices are
'Not running out of
However, respected soft commodities analyst Judith Ganes
Chase - while acknowledging that investors may have underestimated the threats
to Brazilian coffee output from frost and tree stress after "back-to-back
bumper crops" – cautioned against overplaying the lower production estimates.
"Other crop view are not nearly as low, and still place the
crop between 53m-55m bags," she said.
"It's not a bumper crop, but sufficient to cover market
"The world is certainly not running out of coffee, and will
remain well supplied."
'Creates a new worry'
Furthermore, the heavy tree pruning may be sowing the seeds
for weaker prices ahead, in boosting yield potential for future crops.
"It will give the trees the chance to recover, and now
creates a new worry," she said.
"In two years from now, Brazil could have the potential to
see output expand as the pruned trees start to produce fruit again."
The comments raise concerns that growers, having taken
something of a harvest holiday this year, may face low prices when their trees
return to productive use.
A drop in coffee prices below the cost of production has
been a major concern for coffee producing countries such as Brazil and Colombia,
for which the crop is a major earner for rural economies.