Prices for coffee may rise more,
12/21/2004


BLOOMBERG NEWS

Coffee prices, now at a five-year high, may rise further as the weakening dollar prompts growers in Brazil, the world's top producer, to hold onto their beans, according to Barclays Capital.

"The overall situation of the coffee market, especially in the short term, looks bullish," analysts George Hopley and Paul Horsnell wrote in a report.

Coffee for March delivery rose 9 percent last week in New York as the International Coffee Organization said global demand will outstrip supply into 2006. Prices for higher-quality Arabica beans have surged more than 60 percent in the past year on expectations that a cyclical decline in Brazil's production will force processors to dig deeper into inventories.

"A price rally under normal circumstances would have prompted a load of deliveries out of Brazil," Barclays said. "However, recent developments in the foreign exchange market limited the real level of the price hike benefits to be translated monetarily to producers."

The Brazilian real has gained 6.2 percent against the U.S. dollar this year, cutting profit for growers who pay costs in local currency and sell their coffee for dollars.

The lack of producer selling has spurred roasters to draw down inventories, Barclays said. Warehouse stockpiles tracked by the Green Coffee Association have declined 11 percent since June.

Global coffee production will fall as low as 106 million bags in 2005- 2006 from 114 million in the current crop year, the London- based International Coffee Organization said last week.

Coffee for March delivery reached $1.0430 a pound last week on the New York Board of Trade, the highest since December 1999.

Meanwhile, cocoa reserves are heading in the opposite direction to coffee, Barclays said.

The surplus for 2003-2004 was 145,000 tons, according to the Economist Intelligence Unit, up from a previous outlook of 91,000 tons. Global production, estimated at 3.3 million tons by the economist unit, surpassed forecasts because of higher harvests in Ivory Coast and Ghana, Barclays said.

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