Coffee prices have "limited potential" for a further decline, the International Coffee Organization said, cutting its forecast for world production because of losses to disease in Latin America.

Coffee prices have fallen significantly from highs set in the first half of 2011, particularly values of arabica beans, which stand at less than half the 14-year top of 306.25 cents a pound they reached then.

The price decline has been attributed to a strong Brazilian arabica harvest last year, expected to help return the world coffee market to production surplus in 2012-13 after successive seasons of deficit.

However, "there seems to be limited potential for further downwards price corrections", the ICO said, warning that supplies ahead may not be as generous as had been thought.

Disease hits

While the market had seen a rise in coffee supplies hitting the market, thanks to harvests from the likes of Brazil, prospects for some countries harvesting later in the season were not so rosy.

"Some countries in Central America have been affected by adverse weather as well as coffee pests and diseases, in particular coffee leaf rust and coffee berry borer, which could have an impact on production levels going forward," the ICO said.

The organisation downgraded forecasts for production in Costa Rica and Guatemala, and cautioned of the potential for setbacks in other countries too.

"Reports of coffee leaf rust in several Central American countries could still affect the current estimates."

'Still experiencing difficulties'

Furthermore, the ICO cautioned over "further delay" in Colombia's return to historical levels of production, after successive seasons when output was hurt by poor weather, which encouraged the spread of diseases such as the roya fungus, and by the impact of replanting programmes.

"In Colombia the coffee industry is still experiencing difficulties, particularly as a result of the outbreak of the coffee berry borer, which may further delay a return to the country's normal production levels," the organisation said.

Crop year 2012-13, which began in October, "has seen two consecutive months of lower year‐on‐year production, and the expected recovery has not yet been realised".

The comments contrast with more upbeat comments from Colombia's Fedecafe growers' federation, which reported December output at 904,000 bags, up 23% year on year, and has foecast a rise in production in 2013.

The ICO cut by 1.9m bags to 144.1m bags its forecast for world coffee production in 2012-13.

Demand growth?

The group also highlighted: low levels of world coffee stocks, which opened the season at a record-low 15.1, bags; rising production costs which were "reducing good agricultural practices"; and the "strong potential for growth" in consumption in emerging markets.

These are all factors which should, in theory, support values.

On futures markets, arabica coffee for March reversed early losses to stand 0.3% higher at 148.60 cents a pound in late deals, while London robusta coffee was 0.5% higher at \$1,925 a tonne.

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