Financial Times (Ft.com) -Strong supplies from Colombia and expectations of another good crop in Brazil weighed on coffee, with prices hitting their lowest in almost five years.
Arabica coffee, the smoother-tasting high quality bean, continued to slide, with ICE coffee for March delivery falling to $1.054 a pound, the lowest since March 2009.
Analysts said that the benchmark could fall below $1 a pound, a level not seen since 2006. “We probably have further downside,” said Kona Haque, analyst at Macquarie in London. “I’m struggling to see where the big supports are.”
Since hitting a 34-year high of $3.089 a pound, arabica coffee prices have slumped on large Brazilian harvests helped by efficient production and favourable weather.
The market is in the second consecutive year of surplus, with a third expected to follow in the 2013-14 crop year.
Colombia is reaping the benefits of its recovery programme after la roya, the coffee rust, decimated its trees. Its high quality crop is expected to total 8.5m 60kg bags in 2012-13, up more than 20 per cent from the previous year, according to Swiss-based coffee traders Volcafe.
In 2013-14 this could rise to 9.5m bags, more than compensating for the fall in output from the central American growers, who have been affected by the rust problem.
The Colombian Coffee Federation said the low prices had hit its growers, who were looking for state aid. “Colombian farmers have increased their yields thanks to the renovation program with rust-resistant varieties and this has helped them over the last few months. However, the situation is complex and would require continuing government support,” it said.
Despite the weak market, with prices expected to decline further, coffee roasters and food companies were happy to sit on the sidelines, rather than lock in current prices by buying forward, said traders.
And while coffee farmers are expected to cut down on fertilizer and pesticide use, leading to lower yields, the slump in prices was unlikely to lead to a sharp fall in production.
Unlike agricultural commodities such as corn or wheat, where seeds are set down every year, coffee grows on trees, and it is easier for farmers to increase production in response to rising prices than to cut it when prices fall.
“Just because the farmers are hit with lower prices doesn’t mean that they will tear up the trees,” Ms Haque said.