Business Daily (Nairobi)
Allan Odhiambo
28 October 2007
The return of rains in Brazil has triggered anxiety among local coffee producers and marketers with expectations of slumps in prices of the commodity after a historic two-month rally.
Uncertainty over the weather in the South American nation in the past few months saw prices of the commodity climb substantially in key international markets. With this, speculators rode on the wave of a depressed supply situation caused by a spell of drought, making a kill in earnings.
Brazil is the largest producer of coffee and any variations in its production programmes have crucial implications on the activities of key international markets such as New York.
"This was a result of intensive speculative movements on the consequences of a prolonged absence of rain in Brazil, which continued to affect the market," International Coffee Organisation (ICO) executive director, Néstor Osorio explained in a market report for September.
In Kenya, the effects of a shaky production in Brazil was greatly felt with prices of the commodity climbing to a two-year high to the delight of most players in the industry who only four months ago were crest-fallen following a run of poor prices.
Locally the impressive growth in prices was further boosted by shortfalls in supply due to incidents of outbreaks of diseases such as coffee berry disease (CBD) and coffee leaf rust (CLR) in key growing areas of central Kenya.
Analysts, however, say a stagnation and a possible decline is now expected in the prices of the commodity as production in Brazil gradually returns to normal.
"The effect of the returns of rains in Brazil is already stalling prices in key international markets and we expect them to depreciate with time," Daniel Mbithi, an official at the Nairobi Coffee Exchange (NCE) told Business Daily.
Experts said the current depressed supply situation following the recent cold spell over most growing areas and the incidents of CLR and CBD are likely to provide the local market with some reprieve in that a strong demand would cushion against sharp drops in prices.
"The high quality grades are expected to maintain their good price trend locally because the supply situation is shaky and piece meal," Etienne Delbar of Socfinaf Limited told Business Daily.
This trickle in supply from producers has triggered a rush by millers as the year moved towards a close. Industry sources told Business Daily that some millers were even lobbying for an extra auction in the month of December to consolidate their purchases from farmers.
Analysts pointed out that this scramble poses a theatrical twist for the industry where only several months back players were forced to impose quotas on supplies to the weekly auction to protect prices from the effects of over-supply.
Globally, the knocks in production volumes triggered drops in coffee exports over the month with statistics showing a 13 per cent slump to 7.54 million bags compared to a similar period last year mainly due to short supplies from Brazil and Vietnam.
The development saw the ICO indicator price increased from US $106.77 cents per pound at the beginning of September to US $I15.90 cents per pound at the end of the month after reaching a peak of US $118.46 per pound - the highest level for almost a decade.
The monthly aggregate price also rose during September to peak at US $113.20 cents per pound.
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