ICO sees arabica price up

SAN JOSE: The price of robusta coffee could fall next year on ample stocks even as prices of higher quality arabicas are expected to remain firm on tighter supplies, International Coffee Organization Executive Director Jose Sette said.

Overall coffee supply will meet demand but output from the upcoming harvest could vary among qualities as the world's leading coffee exporter, Brazil, enters a low production cycle, Sette told Reuters.

"I think we're in a state of approximate balance between supply and demand. Some qualities may be tight, but I'm talking about the overall picture," Sette said on a call from Brazil on Saturday.

The ICO estimates 2011-2012 world coffee production at 130 million 60 kg bags, down from the last harvest estimated at 133.31 million bags.

Speaking ahead of a coffee conference in the Nicaraguan capital of Managua on Monday, Sette said: "This is just a natural up and down because Brazil has a cycle that is one on year, one off year. (Next cycle) 2011-12 is an off year so it's natural that their crop is smaller."

Lower-than-usual production in Colombia, a world leader in washed arabicas, propped up arabica prices to a 34-year high in early May. But Colombia is pushing for a comeback.

"It's a bit early to see how much, but Colombia is definitely showing a recovery from the depth of the problems it has faced the past few years," he said.

New York's benchmark arabica coffee contract has more than doubled from its level two years ago but is still volatile, with prices falling about 20 percent since a peak in May.

Despite the high prices, coffee demand is "healthy" in most consumer nations including North America, Asian countries and northern Europe.

Consumption is more sluggish in countries such as Spain, Portugal and Greece, where the countries' own "macroeconomic problems" put a strain on household spending, Sette said.

Even in the United States, where some coffee drinkers are shifting to cheaper brands amid the flagging economy, demand is expected to remain steady in the coming year, he said.

Brazilian government agency CONAB estimates production to be 43.54 million bags, below the 48.1 million in 2010-2011.

The ICO director said he is seeing signs that suggest a weak Brazilian crop.

"There are some reports that (Brazil's) beans are not as big as they usually are so the harvest is a bit lower than you would suspect," he said. He did not give a precise national estimate.

"In the next few months next year or so arabica prices are set to be firm; robusta may not be as firm because there is a plentiful supply," said Sette, adding that robusta prices will depend on upcoming harvests in Indonesia and Vietnam.

Central America, whose arabicas served as a stand-in for some buyers while Colombia's output suffered, reacted positively in the past harvest to high prices, Sette said, noting farmers' improved crop care that helped boost quality and exports.

"We've had very strong exports from Central America over the last nine months," Sette said. "I do not predict that it could show the same kind of increase next year."

Copyright Reuters, 2011