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
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.
"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
"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
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
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
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
"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."
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.