Coffee shortage looms two years from now

A world coffee shortage is looming two years from now as yields from Brazilian trees dwindle and a global surplus in 2006-07 fails to replenish stockpiles in producer countries, commodity analysts F.O. Licht forecast.

“In 2007-08, stocks could be at a critically low level,” F.O. Licht Man- aging Director Helmut Ahlfeld said Fri-day in a telephone interview from its head office in Ratzeburg, Germany.
Costs have risen for producers in Brazil, the world’s biggest grower and exporter of coffee, while the strengthening real has hurt earnings. The Brazilian currency has gained 53 percent versus the dollar since the beginning of 2003.

“This makes it difficult to embark on renewing billions of trees, which are now beginning to age and are past their
prime,” F.O. Licht said in a report today. “Without replanting, yields will begin to slip back in the years to come.”

Yields from Brazilian trees will naturally fall in 2007-08 after a big harvest the previous year. Abundant coffee crops are typically followed by smaller ones as the trees require about one year to recover.
Brazil’s coffee production in 2006-07 will increase to between 40 million and 48 million bags, each weighing 60 kilograms (132 pounds), F.O. Licht predicts.
The Brazilian government has lowered its estimate for the 2005/06 harvest to 33.3 million bags from 39.3 million bags. Coffee traders estimate the crop will be between 34 million and 36 million bags, the report said.
Vietnam

Production probably will increase next year in Vietnam, the second-biggest coffee grower, according to the report.

“After this year’s drought, water reserves are now good, with the trees green, and a bumper crop is expected for 2006-07,” F.O. Licht said. Still “stocks in producing countries should be extremely low. Any surplus in 2006-07 may not be high enough to allow producers to replenish depleted stocks.”

Prices of Robusta, bitter-tasting beans used by Nestle S.A. and Kraft Foods Inc. for instant coffee, have gained 54 percent this year on the Liffe exchange in London. Vietnam is the biggest grower of Robusta. Milder Arabica beans, which account for most of Brazil’s crop, have fallen 1.4 percent this year on the New York Board of Trade. “Stock figures are notoriously unreliable and levels will only be known to have ‘hit bottom’ if prices make a sharp upward jump, prompting producers to sweep their warehouses.”

By Peter McGill
Bloomberg News