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ICO coffee composite price in May hits lowest level in two years

Arabica prices continued to decline in May, dragging down the International Coffee Organisation (ICO) composite price to the lowest level recorded since August 2010, the ICO highlighted in their latest coffee report.

The drop in Arabica prices led to the monthly average ICO composite indicator falling by 1.7 per cent, from US160.46 cents per pounds in April to US157.68 in May. While the significant fall in Arabica prices led to the drop, a significant rise in the price of Robusta balanced the price movements, triggering a narrowing in the differential between the two types of coffee, the ICO noted.
The price changes were not a reflection of current market fundamentals, where the ICO estimates the total production of all exporting countries in the 2011-12 crop year is 131.9 million bags, a drop of 2.3 million bags over the same time last year.

Some production increases, however, were forecasted, including a projected Brazilian production of at least 50.4 million bags, a 16 per cent jump over the year prior.

“Production increases are also expected in other exporting countries, encouraged by the performance of coffee prices in recent years,” the ICO reported.

The ICO addressed concerns of the possibility of increased production leading to over-supply in the world market.

“Prospects of a continuing demand for coffee remain promising, particularly in emerging markets and exporting countries, in addition to the growth of niche markets,” the ICO noted. From 1990 to 2011, world consumption increased by 53.4 per cent as a whole, with emerging markets showing the most potential, as traditional markets only increased by 17. 7 per cent.

“Buoyant world consumption should help maintain a fair balance between supply and demand,” the ICO concluded, adding that an increase in oil prices will also lead to an increase in production costs in terms of higher transport and fertilizer costs.

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