Coffee Producers to Stay on High Earnings Path
A farmer at his coffee plantation. Premium earnings will be buoyed by the rise in global demand. Photo: courtesy of Reuters via Business Daily
Business Daily
April 14, 2008
Coffee producers are set to continue enjoying premium earnings in the medium term helped by a steady rise in demand for the commodity in the global market.
An International Coffee Organisation (ICO) survey shows that though Arabica coffee prices recorded downward adjustments of about five per cent in March, the trend is expected to level out in the coming month as demand improves.
Kenya exclusively produces small volumes of the much-sought high quality Arabica coffee.
The ICO reckons that continuing fund activity in the commodity markets had triggered price volatility that has surprisingly worked in favour of Robusta producing nations such as Uganda with the prices climbing by as much as 5.6 per cent.
The ICO reckons that continuing fund activity in the commodity markets had triggered price volatility that has surprisingly worked in favour of Robusta producing nations such as Uganda with the prices climbing by as much as 5.6 per cent.
“In the space of two days between March 5 and 6 quotations on the New York futures market (ICE) fluctuated by 5.5 per cent, falling from US cents 165.10 per pound to US cents155.95per pound, only to rise again to US cents159.05per pound on March13 before falling by 17.5 per cent to US cents131.2 per pound March31,” the ICO said in its market report for March.
Prices at the Nairobi Coffee Exchange (NCE) are linked to the New York futures market where changes recorded reflect on the local market.
The shake up that is linked to the slump in Arabica prices resulted in the monthly average of the ICO composite indicator price declining to US cents122.93 per pound on March 31 compared to US cents152.85 per pound on March 3.
Nestor Osori, the ICO executive director, reckons that global prices of Arabica would remain firm at least in April as consumption patterns in most countries strengthen.
“Despite the volatility in March, the behaviour of the market in the first week of April seems to indicate firm price trends for all four groups of coffee,” he said.
In Kenya, the prospects of price stability became clear last week as prices rallied at the auction after scaring drops in previous two successive auctions.
The price slump was attributed to investors in key international markets decision to take refuge in commodities to escape escalating a financial crisis and a weakening dollar.
The stabilisation of markets was in response to the US Federal Reserve’s approval of special financing to facilitate the purchase of US investment bank Bear Stearns by JPMorgan Chase.
Last week the NCE recovered from the price scare that saw Kenyan coffee prices rise taking after price movements in New York and suppressed volumes as the main crop season dragged to an end. Analysts said the drying up of crop would be a major catalyst for stronger prices.
This is because the country is yet recover from the acute outbreak of Coffee Berry Disease(CBD) last year. The Coffee Research Foundantion (CRF) estimates that the overall production for 2007/08 season would fall to below 42,000 tonnes. During last week’s sale these two fundamentals played out with top grade AA fetching $267-$162 per 50-kg bag compared with $346-$158 per bag at the last auction.
AB grade sold at $234-$123 compared with the previous sale’s $192-$138 per bag.
Also well captured at the auction was the fact nearly all of the 26,399 sixty-kilogramme bags of coffee offered for sale were snapped leaving just about 2,000 bags untouched compared to the 8,000 bags that went unsold the previous week.
The ICO, however, cautioned that a weak dollar and escalating prices of oil as well as lack of labour especially in key producing nations such as Brazil could affect the industry this year.
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