Tight supplies and dwindling stocks of both Arabica and Robusta will continue to pressure the coffee market, a top analyst said on Monday. Unless the 2007/08 Brazil coffee crop comes in at the high end of predictions, December contracts on the New York Board of Trade should hit between $1.35 and $1.50 per pound, said Judy Ganes of J Ganes Consulting.
"You certainly couldn't tell that now. But if the Brazil crop is the USDA (United States Department of Agriculture) figure (of 45 million 60-kg bags) or less you certainly will get that (price range)," she told Reuters in an interview.
Earlier, Ganes told the XVII National Coffee Congress in Guatemala that market fundamentals indicate reserve stock is at levels that offer many "dangers" for the market in the mid-term, particularly if something happens to interrupt supplies.
"Tightness is going to be in both Arabica and Robusta markets," she said. "We're looking at 06/07 being more balanced than 05/06, but we return to a deficit situation in 07/08." Ganes attributed the Arabica squeeze to a rise in global demand combined with a slow recovery in output following years of low prices, in part due to a decrease in the number of producing trees as farmers begin replanting and severe prunings postponed for cost reasons during the market's down period.
However, she said the Robusta market is tightest as an increase in soluble consumption in both producing countries and emerging coffee markets has outpaced the increase in supply.
Although she expects the upcoming Vietnamese crop to be over 15 million bags, higher than many recent estimates, Ganes said Brazil will be hard-pressed to meet growing domestic and strong foreign demands, a situation that will help pressure prices for the next two years.
"A Brazil crop of 42 to 43 million (bags) is just not enough to meet market demands," she said. "A crop of 45 million is not enough to brace Brazil for the reduction coming in the next year. I would not expect to see Brazil have these massive crops (of past years)."
Pegging current global stocks at under 40 million bags and falling as consumers draw down on their reserves, Ganes said the market faces "exceptional tightness" as reserve supplies near 25 percent of global demand. "There is just no margin for error," she said.
The key is how quickly farmers in Brazil, the world's top producer, respond to higher prices with higher outputs, something Ganes doubts will happen in the immediate future.
"For 07/08 we're looking at another year of production deficits," she said. "When you combine producer and importer stocks, total stocks could become tighter in 07/08 than in 96/97," when coffee spiked to record prices before crashing in to a prolonged lull. She said producers should not expect a bull run in coming weeks as coffee prices lag in the northern summer months.
"Both Arabica and Robusta prices should stabilise in the next couple of weeks," she said. "We are near the bottom and then they will trend back up."