Coffee farmers eye 2014 boom as Brazil pulls down global output

 

Last year, a production surplus drove international coffee prices below the costs of production, according to International Coffee Organisation (ICO) data. FILE 

In Summary

• The Nairobi Coffee Exchange says steady economic recovery in Europe and lower production forecast in Brazil will push up international coffee prices this year.
• Last year, a production surplus drove international coffee prices below the costs of production, according to International Coffee Organisation (ICO) data.
• ICO data shows Brazil is expecting 49.15 million bags, 3.3 per cent lower than last year’s output, with mixed prospects in other major exporters.

Coffee farmers are set for better fortunes this year following steady economic recovery in Europe and lower production forecast in Brazil.

The Nairobi Coffee Exchange, the central market for buyers and sellers in Kenya, said the twin factors would push up international coffee prices this year, resulting to improved earnings by farmers.

“Coffee prices rarely follow fundamentals, but as long as the economic recovery in the Eurozone is sustained and there is reduced supply in the global market, prices will be better than last year’s,” said KCE chief executive officer Daniel Mbithi.

Last year, a production surplus drove international coffee prices below the costs of production, according to International Coffee Organisation (ICO) data.

In Kenya, the glut in the international market translated to low returns on investment. Data produced by KCE shows that out of the 18,881 bags offered for sale on Tuesday last week, only 5,326 bags - less than a third - were bought at an average price of Sh140 per pound.

READ: Kenya's top coffee price drops at auction

The finest grade, AA, fetched Sh193 per pound and saw 496 out of the 4,512 bags offered for sale being bought through the exchange.

The data shows that 2,150 bags out of 8,360 bags of grade AB offered for sale were bought at an average price of Sh150 per pound. “Generally, these prices represented an average increase of 10 per cent on the December prices,” Mr Mbithi said.

Although the monthly average of the ICO overall indicator price increased in December by 5.5 per cent to $1.3 (Sh96) per pound, it was the second-lowest level recorded in the year.

ICO data shows Brazil is expecting 49.15 million bags, 3.3 per cent lower than last year’s output, with mixed prospects in other major exporters.

In the short-term, the impact of this will be cancelled out by the glut before the reduced production and rising consumer demand in key markets support prices.




Europe, one of the major markets for coffee is currently showing signs of economic recovery.

Economists have cited the improving bonds market and expansion plans by manufacturing, retail and construction sectors as signals of an upturn.

“With certified stocks on the London futures market approaching record lows, and consumption continuing to grow at around 2.4 per cent per year, demand for coffee remains buoyant and should provide potential for further growth in the longer term,” the ICO report adds.

This is already showing in the futures market where monthly average prices for Brazilian Naturals increased by 4.7 per cent to Sh91.30 per pound in December.

Other Milds increased by 3.2 per cent to Sh107 and briefly traded above Colombian Milds, which averaged Sh107.6 or 1.5 per cent higher than November.