Rabo reassures on arabica, robusta coffee prices

Rabobank offered a little support to coffee bulls, downplaying the risk of a collapse in prices of arabica beans, while nudging higher its estimate for robusta futures.

The bank said that, for arabica beans, the "apparent impact" of drought on Brazil's coffee output had become "less pronounced than anticipated" as harvest has progressed, a factor evident in the beans' decreased premium over robusta.

Nonetheless, the bank kept at 46m bags its forecast for Brazil's coffee harvest, including 28.5m bags of arabica beans, saying that it was "still too early to determine final volumes".

That estimate is in the lower-middle of the range of analyst estimates, which spread from about 40m-55m bags, with the extent of the spread a measure of the uncertainty.

'Impacts to linger'

There were reasons for prices to receive continued support too, with Brazil entering a period when frosts become a risk, and with the impact of drought expected to extend into next year's harvest.

"The impacts of the drought are expected to linger into next season and constrain yields, which will likely limit the downside of arabica prices," Rabobank said.

The bank stuck by a forecast for arabica futures averaging 175 cents a pound in New York in the newly-started quarter, a little above the 170.95 cents a pound at which September futures closed on Tuesday.

'Tightening stock levels'

For robusta coffee, the bank also stuck by its price forecast for the current quarter, of London futures averaging $2,000 a tonne, a touch below the $2,016 a tonne that the September contract finished at on Tuesday.

However, it lifted by $50 tonne to $1,900 a tonne its forecast for futures in the October-to-December quarter, and by $100 a tonne to $1,900 a tonne its forecast for prices in the first three months of 2015.

The bank termed "supportive" the outlook for robusta prices, "with tightening stock levels and weather risks looming".

London stocks fell to the equivalent of 54 contracts last month, from 200 contracts in mid-May, "tightening available stocks".

And with the El Nino weather pattern, which typically causes dryness in South East Asia, looming, "we see further downward production revisions ahead" for major producing countries.

Robusta is produced largely in Vietnam and Indonesia, where export data released on Tuesday from Sumatra, the country's top producing region, showed June shipments at 6,898 tonnes, down 41% year on year.

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