Threat to Arabica Harvest

29/05/2012
 
Threat to Arabica Harvest 
THE WALL STREET JOURNAL (USA)
 
Low Futures Prices for Gourmet Coffee Beans May Lead to Lower Investment

A steep drop in arabica coffee futures this year is souring prospects for the next harvest of some of the world’s most coveted beans.

Coffee producers from verdant highlands of the Andes to Mexico—where much of the world’s gourmet beans are grown—say low prices mean they will have less to invest in their high-maintenance plants. This is poised to lead to smaller, lower-quality crops and higher coffee prices later this year.

Luis Gonzaga Ordonez, manager of the Association of High-Quality Coffee Producers, a group representing 250 growers who harvest coffee from the slopes of the southwestern Huila region of Colombia, expects production to drop 30% in the 2012-13 crop year beginning Oct. 1.

He said farmers will scale back spending on their plants and take others out of production altogether.

Last week, Costa Rica’s coffee board, Icafe, urged farmers to fertilize to maintain their plants, even though the cost of fertilizer is up 10% this year.

“If not adequately done, the potential harvest of the plants could be severely compromised” in the coming season, Icafe said in a report.

An increase in production costs, such as fertilizer, couldn’t have come at a worse time. Arabica futures have fallen 26% so far this year, leaving coffee farmers with far less return for their crops.

Arabica coffee for July on ICE Futures U.S. delivery settled Friday at $1.6780 a pound, up 0.5% on the day.

Gabriel Barreda, president of Mexico’s National Coffee Growers Union, said farmers need to invest $1,800 to produce 23 60-kilogram bags in the southern highland Chiapas state, the least-expensive growing region, up 20% from last year.

Agapito Hernandez, who farms arabica beans on his small 2.4 acre farm in Mexico’s central Puebla state, said: “The one who is having to carry this weight is the small producer.”

He added: “The small producer doesn’t have anything to hang onto to continue cultivating his plants. With this income, it’s barely enough to feed his family.”

But a subsequent rise in prices isn’t likely until late this year or early 2013, in anticipation of lower supplies—and when the lack of investment starts to be felt.

“Crop husbandry as well as abandonment is many times underestimated,” said Keith Flury, a commodities analyst at Rabobank.

“In general, the response is always delayed.”

Coffee prices have fallen this year largely due to the coming harvest in top grower Brazil. Coffee trees in Brazil, the source of about one-third of the world’s coffee beans, produce bigger and smaller harvests in alternating yearly cycles.

This month, Brazil will begin harvesting a “bigger” year of the cycle–and the government expects it to be a record of 50.45 million 60-kilogram bags.

But when the next crop is harvested, the country will be in “smaller” cycle.

This will strain supplies—and push prices higher—at the time when a lack of plant maintenance is going to be felt by the market, traders and analysts said.

“The level of investment on the farms is going to be greatly reduced,” Mr. Gonzaga Ordonez said.

“First it’s going to affect quality, then it will affect quantity.”