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Arabica coffee prices - what does 2012 hold?

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Arabica coffee, as traded in New York, is on track to fall some 8% in 2011, a better performance than managed by most other soft commodities, but a poor result compared with the rise of more than 75% in 2010.

Besides the weaker global economic outlook, prices have been held back by a bumper crop for an "off" year in Brazil, the top producer, where arabica output has alternately higher and lower years.

But output in Colombia, the second-ranked arabica producer, has – again – disappointed, thanks to poor weather.

Brokers below give their forecasts for 2012.

Commerzbank

"Arabica coffee… should in our opinion remain above 200 cents a pound in 2012 – a high price level, historically speaking – even if the peaks of 300 US cents a pound seen in 2011 are likely to be a thing of the past.

Commerzbank coffee price forecasts for 2012

Q1: 230 cents a pound

Q2: 200 cents a pound

Q3: 210 cents a pound

Q4: 220 cents a pound

Year average: 215 cents a pound

Forecasts for average prices during the quarter

"A positive factor is that Brazil is poised for a high-yielding crop year in the biennial cycle and Brazilian beans are now also approved for delivery to the New York exchange.

"[But] Brazil had to struggle with a drought between May and September, which hampered the growth of the beans to the extent that no new record will be possible in the next harvest which begins next May

"The fact therefore remains that the global coffee market has been in deficit for years, and at best the forthcoming 2012-13 season could end with supply and demand roughly in balance."

Goldman Sachs

"We expect lower global 2011-12 production (on Brazil's off-year of the arabica plant's two-year cycle), strong emerging market demand growth and low beginning stocks to keep prices elevated.

Goldman Sachs coffee price forecasts

Late Q1: 235 cents a pound

Late Q2: 200 cents a pound

Late Q4: 175 cents a pound

"While Brazil is expected to have [had] a record off-year harvest in 2011-12, we see risk to our short-term [three-month] price forecast as skewed to the upside:

- Colombia has revised its production estimate lower for 2011 for the second time in two weeks on disease outbreak and adverse weather

- recent torrential rains in Central America have likely caused damage to both the local crops and infrastructure

- forecasts for a return of the La Niña weather pattern this winter creates downside risk to Brazilian production.

"Over the medium term, we expect a continued supply response to the current high coffee prices during the 2012-13 crop year with a large "on-year" harvest in Brazil under average weather conditions."

Morgan Stanley

"With supply constrained through the start of the Brazilian 2012 harvest in April, demand strength will continue to determine price resilience.

"Strong demand year to date has reduced [New York exchange] certified inventories to their lowest levels in 20 years.

"Disease pressure and poor transportation infrastructure continue to disrupt the [Colombian] industry.

"With seasonal supply traditionally provided by Colombia in the coming months, we expect that inventories will continue to draw through the first quarter of 2012.

"While weather will still be key, we still believe that increased investment is needed before Colombia will be able to meaningfully grow its production."

Rabobank

"Coffee prices are forecast to fall in 2012 due to the large harvests expected in Brazil and Vietnam. But diminished stocks will keep risks skewed to the upside.

Rabobank coffee price forecasts for 2012

Q1: 220 cents a pound

Q2: 200 cents a pound

Q3: 180 cents a pound

Q4: 170 cents a pound

Forecasts for average prices during the quarter

"We anticipate the 2011-12 coffee season will be characterised by razor-thin stocks and high risks. But in our view this is a turning point in a decade-long trend of shrinking supply.

"Our base case of slowing economic growth in the US and European Union is not expected to have a measurable impact on coffee demand. We also anticipate consumption growth in origin countries to remain robust.

"The Brazilian real is expected to appreciate in 2012, and this generally supports the arabica market. Brazil accounts for approximately 40% of total global arabica output and half of total arabica exports."

By Agrimoney.com

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