The Central American outbreak of leaf rust, affecting half of coffee plantations in El Salvador, will revive prices of arabica beans – but not yet, Macquarie said, amid a high-level meeting which will debate the epidemic.

The impact of rust, caused by roya fungus, in denting arabica coffee production in countries such as Guatemala, Honduras and Nicaragua is being masked in markets by carryover stocks from last season, and a good start to harvest, which have supported early-season supplies.

Exports of arabica coffee from Central America and Mexico reached 3.96m bags in the first four months of 2012-13, up 26% year on year.

Furthermore, investors are upbeat on coffee output in Colombia, which Macquarie sees reviving to 8.75m bags as plantations reseeded with roya-resistant trees come online.

Brazil's overall coffee output was pegged at 53m bags – a record for an "off" year in the country's cycle of higher and lower producing years.

Price outlook

"Given this, in the short term we do not expect New York arabica [futures] to rally too much on the roya news," Macquarie analyst Kona Haque said.

"Equally though, downside is limited, as we expect the range of 130-150 cents a pound to remain for much of the first half of 2013," with the potential for a rise in price differentials afforded to Central American coffee itself.

However, longer term "the world will need to move to higher prices to encourage growers in Central America to expand their coffee plantations", Ms Haque said.

"At today's prices, costs associated with fighting the disease and ongoing structural impediments, the medium term outlook for Central American washed coffee output does not look promising."

Arabica coffee futures for May stood at 143.20 cents a pound in early deals in New York on Monday, down 0.1% on the day and remaining near two-year lows.

However, regulatory data do show speculators' appetite for short position decreasing in the week to last Tuesday.

'Sharply lower supplies'

The comments came as the International Coffee Organization began a week-long meeting in London, at which Central American delegates are expected to give updates on the roya epidemic.

The ICO, in a monthly report last week, declined to estimate the dent to production hopes caused by the fungus until it could make a "more complete analysis".

Macquarie pegged the impact on Central American and Mexican coffee output in 2012-13 at 6% this season, reducing output to 17.4m tonnes, and a further 12% to 15.3m tonnes next season as the impact of the outbreak becomes clearer.

"While farmers can still apply measures to prevent further infestation, we expect sharply lower supplies of high quality mild arabicas from this origin.

"This will likely be reflected in rising Central American coffee price differentials over New York futures over the course of the next few months and into 2013-14."

Virulent disease

Pesticides can, at a cost, provide protection against roya, although longer term replanting with resistant strains, as has happened in Colombia, is seen as the most effective solution – if at the cost of a dip in production while young trees mature.

Roya fungus weakens, and potentially kills, trees by causing leaves to turn black and fall off.

The virulence of an outbreak in Sri Lanka in the 1860s famously caused plantation growers to swtch to tea instead.