EYE ON COFFEE - Part II

The report from the National Federation of Coffee Growers of Columbia cites an anticipated cyclical decrease in Brazilian production as Brazilian coffee fields enter the less productive second year of their two year grow cycle and an expected 2% increase in global consumption that they predict will cause a shortfall of as much as 10 million bags (down from an estimated 7 million bag surplus for this year). Put simply, Columbian growers are betting that the recent explosion in premium grade coffee consumption in markets like China will continue as the availability to consumers increases despite a weaker economic situation. This sounds like a decent assumption to us based on historical precedents –in periods of economic and political turmoil, coffee drinkers in western nations have proven to be resilient and resourceful, but we still view bullish reports from producer associations with a degree of suspicion.
  • Longer term, South American academics warn of potential production declines as rising fertilizer costs have seen independent farmers skimping in recent cycle. Agricultural experts say that the full consequences could be felt in crop yields in 2010 and 2011. In Brazil a report from the Cooperaiso coffee cooperative suggests that fertilizer sales are likely to fall by 20% over this crop year because of price levels, while the Columbian Government has earmarked subsidy funds to try and prevent declines in use by farmers there.
  • Andrew Barber
    Director