Coffee Deficit to Widen as Output Drops, Osorio Says

Dec. 8 (Bloomberg) -- A global coffee deficit is likely to widen this year after bad weather hurt crops, International Coffee Organization Executive Director Nestor Osorio said.

Global supply in the year that began Oct. 1 will be 123 million to 125 million bags, while consumption is estimated at 132 million, Osorio said at a conference today. This compares with the previous year's output of 128 million and demand of 130 million. Each bag is 60 kilograms.

Declining output after heavy rains in Brazil, Vietnam and Colombia, three of the four largest growers, and increasing domestic consumption in producing nations may curb supplies, boosting prices. The mild-tasting arabica, used by Starbucks Corp., climbed 30 percent this year, outpacing a 12 percent drop in robusta beans used in instant coffee and espresso.

"The weather has been erratic," Osorio said in Ho Chi Minh City. "January and February will be crucial for the Brazilian harvest, and also for Vietnam."

Robusta for January delivery in London declined 0.9 percent to $1,365 a metric ton today after jumping 4.3 percent yesterday on speculation Vietnamese farmers may hold back supplies.

"Global coffee prices will rise in the coming months on short supply," Luong Van Tu, chairman of the Vietnam Coffee and Cocoa Association, said in an interview today.

March-delivery arabica dropped 0.3 percent to $1.4615 a pound on ICE Futures U.S. after climbing as much as 4.6 percent yesterday to $1.4790, the highest price for a most-active contract since Sept. 5, 2008.

Brazilian Supply

Growers in Brazil, the world's biggest producer, will likely supply about 39 million bags this crop year, down from 46 million bags last year, Osorio said.

Vietnam, the second-largest producer, may see production slump as much as 20 percent to 17.5 million bags, said Tu. His forecast, equivalent to 1.05 million tons, compares with a range between 1.08 million tons and 1.2 million tons in a Bloomberg survey of five producers and traders.

Rainfall slashed output in Colombia to a 35-year low last season, helping boost prices of arabica.

In Colombia, which was overtaken by Indonesia as third- largest grower last year, "the new crop will still be a very low one," after rains delayed flowering, Osorio said. Production will be 9 million to 10 million bags, up from 8.5 million last year.

Local Consumption

"Vietnam is very well implanted" as a world supplier, Osorio said. That's important as producing countries with large populations such as Brazil and Indonesia are increasing domestic consumption, potentially reducing supplies for export, he said.

Producing countries now account for 26 percent of world consumption and emerging countries 18 percent, he said.

Between 2000 and 2008, demand from traditional markets such as North America and Europe expanded 0.9 percent to 68.6 million bags, while consumption in producing countries increased 3.8 percent to 35.9 million bags. Demand growth was highest in emerging markets at 5.5 percent, he said.

"Brazilians and Indonesians are drinking more coffee," which has implications for exports, he said.

In Vietnam, where the government devalued the currency on Nov. 25 in an attempt to revive flagging exports, "the benefits of currency and devaluation have been offset by inflation," Osorio said. The appreciation of the currencies of Brazil and Colombia has "reduced the benefit of higher prices," he said.

Coffee is Vietnam's second-most valuable crop after rice, with export earnings of $1.7 billion in the 2008-2009 year, Tu said.

Source: Bloomberg.com