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Revival in coffee prices may not have legs

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A revival in coffee prices on Wednesday from, for arabica beans, the lowest in more than two years may not have legs, given improving ideas for supplies, analysts cautioned.

New York arabica coffee for December delivery recovered to 147.75 cents a pound in late deals, up 1.2% from the close of the last session, which represented the lowest finish for a spot contract since June 2010.

The better traded March arabica lot added 1.0% to 152.70 cents a pound.

In London, the best-traded January contract for robusta coffee, the variety of which Vietnam is the top producer, stood 0.5% higher at $1,909 a tonne, recovering from its worst finish, in terms of a nearest-but-one contract, since February.

'Good Brazil prospects'

However, Commerzbank urged caution over expectations of a sustained recovery, flagging, in arabica beans, ideas of record output of 38m bags from Brazil, the top producer, from the 2012 harvest.

"Arabica coffee prices are also likely to rise noticeably again only once attention turns increasingly to the forthcoming low-yield year and the associating tightening of supply on the market," the bank said.

Brazil witnesses alternate higher and lower production seasons for arabica, with the 2013 crop set to be an "off" year.

However, the prospects for next year's output are currently being improved by rains which have come at the right time to promote the sensitive flowering period, Macquarie analyst Kona Haque said.

"Rain is promoting good flowering, and bodes well for a good off-year crop," she told Agrimoney.com.

Speculators sit tight

Furthermore, the relatively small extent of Wednesday's recovery hardly appeared a signal of investor urgency for purchases, which might be especially tempting for speculators sitting on large profits thanks to holding a record net short position in New York futures and options.

"A 1% rise or so after a drop of 4.5% last night – if this was marking a bottom, you would have thought you would have seen a bigger bounce back," Ms Haque said, even if lower prices may be encouraging some purchases from roasters.

A continued rise in certified stocks for delivery against futures on New York's Ice exchange represented a further negative sign.

'Precludes any major price leaps'

Nor was there an obvious support for prices of robusta coffee, given the prospect of another strong harvest in Vietnam, if one below last season's record 26.7m-bag result.

"We should see good supply for robusta this season too," Ms Haque said, forecasting a decline of some 6%, implying a harvest of some 25m bags, at the upper end of the range of market expectations.

Commerzbank said that Vietnamese export data "have weighed on prices of late, suggesting that the country's exports in the first ten months of 2012 were 40% higher than in the same period last year", while soaring 45% in October from September.

"The ample supply made possible by two bumper Vietnamese harvests in a row will doubtless preclude any major price leaps for the foreseeable future."

Separately, the Association of Indonesian Coffee Exporters and Industries said on Wednesday that coffee output from Indonesia, the second-ranked robusta producer, was set to come in at up to 700,000 tonnes this year, compared with 600,000 tonnes in 2011.

By Agrimoney.com

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