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COFFEE: DROUGHT FEAR & NEW DEMAND

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COFFEE: DROUGHT FEAR & NEW DEMAND

Nov 5 2014, 8.00am GMT

Stock.com

In China both demand and production for coffee are on the increase but Brazil is suffering from the consequences of this year’s drought.

In the volatile market of Arabica coffee, the geographical markets are feeling the advantages of demand and supply, and the effects of weather.

In Brazil:

  • Brazil produces 35 percent of all output and is the largest coffee producer in the world.
  • A major drought hit the Brazilian coffee crops this year, with millions of dollars resting on the harvest.
  • Based on forecasts of a poor crop, prices for Arabica hit a two-year high of $2.19 a pound in April, with production forecast at 48 million 60kg bags, down from the 2013 output of 54-55 million.
  • Estimates put supplies from 2014 and 2015 at a range from 92m to 102m bags; a difference of $1.50 or 50% per pound of coffee.
  • The crop has been affected by heavy rains in August/ September leading to early flowering, then dry weather followed that harmed the tree roots.
  • However, inventories from good harvests in 2012 and 2013 may cushion supplies till July 2015.

In China:

  • Demand has increased in China, with coffee drinking up by 15% as opposed to a world-wide increase of 2%.
  • Supply is also up with expanding production and foreign company investment: Nestlé suppliers up from 147 to 2,000 since 2005; Volcafe entered a procurement and processing joint venture agreement with locals Simao Arabicasm Coffee Company; Starbucks formed a joint venture with locals Ai Ni Group in 2012.
  • For over 10 years, exports in coffee have grown, from 137,000 60kg bags in 1998 to 1.1 million bags in 2012 – this equates to just under 1% of world Arabica coffee exports.

In Columbia:

  • In 2007, disease hit the Columbian crop but output has risen since then and is forecast to exceed its original Arabica bean output.
  • The Colombian Coffee Growers Federation launched a coffee tree renovation programme to restore national coffee production through rust control and renovation of coffee trees with varieties resistant to fungus. In 2010, 60,000 hectares were renovated, in 2011, 88,000 hectares, by 2015, a further 130.000 hectares per year will be renovated.
  • Alongside the more resilient Columbian coffee trees, the Columbian coffee supply is also perceived as a safety net to the commodity market against falling output from Brazil.

Coffee commodity market showing the rise from April’s distressing weather patterns in Brazil

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