Chill in Brazil set to brew up coffee prices

Arabica coffee may advance as much as 8 percent as the first frost in a decade may threaten crops in Brazil, the world's largest grower, according to Japanese roaster Key Coffee Inc.

Futures in New York may rally to $1.45 a pound from June to August if cold weather hurts the Brazilian crop, Nobuo Sakamoto, managing director at the second-largest Japanese roaster, said in an interview. The price may then drop as Brazil enters a more productive stage of a two-year cycle next year, he said.

Brazil's major producing areas may face the risk of frost for the first time in 10 years, Sao Paulo-based forecaster Somar Meteorologia said on March 5. Brazil lost 1.4 million bags because of frost in 2000, according to Iapar, the Parana state government research agency. The country will produce 48 million bags this year, National Secretary for Production and Agroenergy Manoel Vicente Fernandes Bertone said in February.

"The risk of frost may increase in Brazil," Takaki Shigemoto, an analyst at JSC Corp in Tokyo, said by phone. There may be "lower temperatures this winter in the country", Shigemoto said. Frosts can kill coffee trees.

Arabica for May delivery fell 0.3 percent to $1.343 a pound on ICE Futures US in New York on Wednesday. The contract, which hasn't risen to more than $1.45 since January, may trade between $1.15 and $1.45 for the rest of this year, Sakamoto said.

"The market may move higher on frost concern during Brazil's winter time," Sakamoto said. "Then the prospect for rising supply in the country next year, and shipments of new crops from central America later this year, will probably drag down the price."

Still, prices will likely avoid excessive volatility as global production is almost balanced with estimated demand of about 120 million bags this year, Sakamoto said. Each bag weighs 60 kilograms.

The price will be supported as production in Colombia, the world's second-largest Arabica supplier, will be curbed by replanting, Sakamoto said. Under a program started in 2008 to boost productivity, Colombian growers eradicate old plantations and replace them with new trees.

Global demand will likely expand as economies in the US and Japan, the world's largest and third-biggest importers, are recovering from the worst postwar recession and as growth in Asia spurs consumers to raise luxury spending, Sakamoto said.

China and South Korea will lead growth in Asia as per-capita consumption in the countries may rise to match the level in Japan, he said, without giving a timeframe.

Per-capita consumption is estimated at 3.3 kilograms a year in Japan compared with 2.1 kilograms in South Korea, Sakamoto said. In China, coffee demand is about 30,000 metric tons a year, or 22 grams per person, he said.

Japan imported 390,938 tons of green coffee beans last year, compared with 387,538 in 2008, according to the Ministry of Finance. The country also bought 6,020 tons of roasted beans, down 9.5 percent from 2008, the ministry said.

Japanese imports, including soluble and liquid coffee, peaked at 458,507 tons in 2006, according to the All Japan Coffee Association, a roasters' organization. As Japan's market has matured, Key Coffee may target overseas markets to boost sales, Sakamoto said.

Hiroyuki Yoshihashi, general manager at Key Coffee's corporate planning department, said it was "cautiously studying the viability of proposals" from China to jointly operate coffee-roasting facilities. The company forecast shipments to overseas markets may reach 14 tons in the year ending March 31, out of total sales of 34,000 tons, he said.

Key Coffee has a 14 percent share in Japan's regular coffee market, the second biggest after UCC Ueshima Coffee Co, a roaster based in Kobe in western Japan. Key Coffee's shares traded as high as 1,619 yen on Thursday on the Tokyo Stock Exchange, the highest intraday price since September 2009.

Source:China Daily