Brazil's Coffee Trades Limited On Soaring Prices

SAO PAULO (Dow Jones)--Brazil's coffee market saw few trades Thursday as buyers balked at soaring prices.

"It is very difficult for people to adjust to the new prices," an independent coffee broker in Rio de Janeiro told Dow Jones Newswires. The broker said transactions were rare Thursday.

"There are two main factors today, the walkout of truck drivers in Colombia and a smaller harvest in Mexico," said John Wolthers, a trader at Comexim in the Brazilian port city of Santos.

Colombian President Juan Manuel Santos said late Thursday he thinks the government is "near a solution" to a two-week-old truckers strike that has pinched coffee exports.

Wolthers termed trading "slow" as buyers face higher prices. Arabica coffee futures for March delivery on ICE settled 3.7% higher at a new 13 1/2-year high of $2.6735 a pound, with concerns about supply shortages persisting amid uncertainty about unresolved trucker strike in Colombia obstructing coffee deliveries or creating backlogs.

Brazil may have "very little" coffee available by midyear, when beans from the new crop start to enter the market, Wolthers said in a report to clients this week. The analysis is based on an estimate of total carryover of 30,066,210 sacks in Brazil on Jan. 1. Each bag is 60 kilograms, or 132 pounds.

The analysis assumes that the exports of green and soluble coffee will continue at a high level similar to sales abroad in January and that Brazil's domestic consumption continues at a rapid pace, Wolthers said.

Brazil exported 2.7 million bags of coffee in January. Brazilians will consume over 1 million more bags of coffee in 2011, breaking more records as the economy continues to boom, and Brazil is set to overtake the U.S. as the largest consumer by 2012, the Brazilian coffee roasters' association known as Abic said on Jan. 26.

Brazilian coffee consumption is set to rise 6% to a record 20.27 million 60-kilogram bags this year, according to Abic, despite sky-high prices for beans.

"For all in the trade, one must prepared for the possibility of still higher markets and the consequences that this may bring in relation to the financial strains imposed at all levels," Wolthers said in the report.

A poor harvest caused Mexico's coffee exports to decline 26% year on year during the first four months of the season, which began in October. Mexico's government says this crop cycle's harvest will be 5% larger than last year's, at 4.4 million bags. Agroindustrias Unidas de Mexico, though, the largest coffee exporter, isn't as optimistic, estimating 3.5 million bags will be produced this year.

From: The Wall Street Journal