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Coffee prices up on worries about Brazil’s crop

Coffee going upCoffee prices in July increased significantly with the monthly average of the International Coffee Organization’s (ICO) composite indicator prices up 4 per cent to 127.26 US cents per pound.

The indicator price climbed to 131.52 US cents per pound on 31 July, an increase of 6.66 US cents per pound from 3 July and the highest level since the end of April 2017.

The breakdown of the ICO group indicators for July reveals that Arabica groups rose more strongly than Robustas when compared to June.

All three Arabica groups registered significant increases as the average prices for Colombian Milds, Other Milds and Brazilian Naturals were up 4.4 per cent, 4.5 per cent and 4.4 per cent, respectively.

The monthly average for the Robusta group rose by 2.9 per cent. As a result of the trends in Arabica and Robusta quotations, the arbitrage, as measured on the New York and London futures markets, increased by 13.1 per cent to 39.68 US cents per pound.

Total exports in June amounted to 10.4 million bags, 5.7 per cent higher than June 2016, the ICO said.

During the first nine months of coffee year 2016/17 total exports were 4.9 million bags higher than last year when shipments amounted to 87.4 million bags.

The strong export performance has resulted in very large inventories in importing countries.

Market developments in July seem to have been caused by a combination of specific agronomic and wider economic factors potentially affecting coffee supply from Brazil.

Reports have emerged that farmers in Brazil’s Arabica‐growing regions currently harvesting the 2017/18 crop are faced with unexpectedly low yields.

Beans are smaller than usual due to unfavourable weather conditions earlier in the season. This is exacerbated by considerable damage resulting from a berry borer infestation.

The ban on use of the highly controversial but effective endosulfan insecticide used by farmers in the past has led to significant spread of this pest, the ICO said. Up to 30 per cent of the crop is estimated to have been affected in major growing areas, with a negative impact on bean quality.

Finally, besides these agronomic factors the weakening US dollar lowered the competitiveness of Brazilian coffee on the world market, hampering exports.

The ICO production estimate for crop year 2016/17 has been revised upward to 153.9 million bags, compared to our previous estimate of 151.6 million.

This is mostly due to an increase in output from Indonesia, revised up from 10 million bags to 11.5 million, and a significant revision for Peru to 4.2 million bags.

While production in Colombia has recovered strongly since the coffee leaf rust crisis, growth is slowly tapering off. Annual growth rates have steadily decreased from 9.7 per cent in 2014/15 to an estimated 3.5 per cent in 2016/17.

However, because of adverse weather in recent months, there are concerns that the growth rate for this crop year may have to be revised further downwards.

As a result, total production for 2016/17 is expected to be 1.5 per cent higher than last year, which would be an all‐time record. Total production of Arabica is estimated to reach 97.3 million bags, up 10.2 per cent, while Robusta output is expected to decrease by 10.6 per cent to 56.6 million bags.

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