NEW ORLEANS: The global supply of coffee will shift to a small deficit in the 2014 - 15 crop year for the first time in five years as top grower Brazil's bean output drops to 51.5 million bags following a drought, a BNP Paribas strategist said on Saturday.
Keith Flury, Agricultural Markets Strategist for the bank, said at the National Coffee Association of USA conference in New Orleans that he expects a global coffee deficit of 612,000 bags in 2014/15, versus a 5.6 million bag surplus in 2013/14.
This will be the first time demand will outstrip supply since 2009/10 as production drops 2.2 percent from the previous year to 150.1 million bags.
This will be the lowest global production level since 2011/12 and the biggest year-over-year percentage drop since 2009/10. Earlier this month, the International Coffee Organization said it anticipated a global coffee deficit of at least 2 million bags in 2014/15.
"It's very much a function of the Brazil crop being lower," Flury said. Though Brazil's government pegged its 2013/14 production at 49.15 bags, most industry estimates pegged it around 53 million bags.
The deficit forecast comes after Brazil's main arabica coffee growing region suffered drought conditions in January and February during the critical stage when beans were developing on the trees.
A March 7 Reuters poll of 20 analysts around the world pegged Brazil's 2014/15 coffee crop at 48.9 million bags, down 11 percent from a January estimate, though many in the industry do not expect to know the full extent of the damage until harvest begins in full force, possibly in May.
The unprecedented timing of the drought took the coffee industry off guard and caused a surge of speculative buying on the futures market, lifting the ICE Futures US benchmark arabica contract a jaw-dropping 80 percent in seven weeks to a two-year high at $2.0975 per lb on March 12, it's biggest such surge since 1994.
Coffee drinkers, however, are not expected to ration consumption, even as some US roasters have been forced to raise prices.
The risk premium that's been placed on the futures market lifted arabica coffee's premium over the robusta bean above $1 per lb to a two-year high earlier this month, making the more bitter robusta coffee more attractive to roasters.
"With a really wide arbitrage you use more robusta," Flury said. "We want the world to use more arabica because there's not enough robusta, we're getting very tight."
Still, coffee drinkers will consume 81.2 million bags of arabica coffee in 2014/15, up 1 percent from the year prior, after falling more than 6 percent in 2011/12 following an 11-month price rally that caused the cost of the green bean to more than double.
The usage of robusta, the lower-costing bean traditionally processed into instant coffee but increasingly added to roast and ground blends as a lower-costing alternative, will rise by 3.1 percent to 69.5 million bags in 2014/15, maintaining its steady consumption rate, Flury said.
Arabica coffee is usually processed into roast and ground coffee to be brewed, and can reach high levels of quality, though this ranges widely.
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