Brazil holding its coffee for even higher price

Brazil, the world's biggest coffee producer, is holding out for even higher prices before releasing stocks the government amassed a year ago, the country's top coffee official told Reuters in comments that could lend fresh support to the biggest rally in 14 years. The per capita consumption of roasted coffee in Brazil reached the historic level of 4.81 kg in 2010, exceeding the 1965 record, according to Brazil's coffee industry association (Abic). The per capita consumption of 4.81 kg is equivalent to almost 81 liters of coffee per person per year. Photograph by: Nacho Doce, Reuters. - The Ottawa Citizen

By Peter Murphy
The Ottwa Citizen

February 19, 2011

Brazil, the world's biggest coffee producer, is holding out for even higher prices before releasing stocks the government amassed a year ago, the country's top coffee official told Reuters in comments that could lend fresh support to the biggest rally in 14 years.

Despite tightening supplies which have caused global coffee prices to double since last summer, Roberio Silva expects prices to remain at their current level with few prospects for a rapid rise in global output.

"When the market warrants it, obviously we will consider (selling), but not at the moment," said Silva, Brazil's candidate for the next executive director of the International Coffee Organization (ICO) that will be chosen this year.

Brazil has an estimated 1.2 million bags of exportable 2009 arabica in storage, supplies originally purchased in early 2010 at around $180 per bag to prop up prices when coffee futures were trading at half what they are today.

These coffees now showing an implied paper gain of nearly $240 million U.S.

While that's equivalent to just about three per cent of what Brazil shipped last year, the immediate injection of those supplies would go some way to easing tight supplies that could run short in 2011/12 with one analyst forecasting a deficit.

New York May arabica coffee futures continued to climb on Friday after ending at a 13-3/4 year high on Thursday.

CoffeeNetwork, a coffee information company, last week estimated global output in the 2011/12 international crop year at around 131 million 60-kg bags.

That would fall short of expected demand for 135 million bags.

More than a dozen traders, analysts and producers interviewed by Reuters in January predicted, on average, a tight but close-to-even supply and demand balance.

Silva also dismissed the idea of providing government incentives for growers to increase output, that he said could foment a whiplash collapse in prices and backfire on growers -a policy that may threaten to constrain further growth.

"We won't entice anyone to take decisions that could require a bailout later," Silva said.

He said it was down to the individual farmer to decide whether and by how much to expand his production.

Analysts say global coffee production is failing to keep pace with rising consumption. The world's No. 2 arabica producer, Colombia, has had a run of disappointing harvests and Brazil is heading into a smaller "off-year" crop in 2011.

Brazil's crop supply agency Conab estimated in January the forthcoming 2011 harvest at 41.9 million to 44.7 million 60-kg bags, down from last year's 48.1 million bags. Silva said he had received good feedback on the crop's development since then.
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