World Coffee Market to Move to Deficit, Colombia Says

By Aya Takada

Oct. 20 (Bloomberg) -- The world coffee market will swing to a deficit of as much as 10 million bags next year from a surplus as demand growth outstrips production, said a growers group in Colombia, the third-biggest producer.

Global coffee output will exceed demand by 6-7 million bags this year as Brazil, the largest producer, is in the more productive phase of a two-year cycle, said Juan Lucas Restrepo, commercial manager at the National Federation of Coffee Growers of Colombia. Lower Brazilian output and demand growth of 2 percent next year will cause the shortfall, he added. A bag weighs 60 kilograms (132 pounds).

``Overall consumption is growing faster than production, and global inventories will decrease further next year,'' Restrepo said in an interview in Tokyo Oct. 17. ``Growth is not coming from mature markets but from emerging markets.''

Coffee futures in New York reached a 15-month low of $1.0935 a pound on Oct. 8, plunging 36 percent from a 10-year high of $1.7190 Feb. 29. Restrepo said the slump was because of ``panic'' among investors amid the global credit crisis, which spurred a sell-off in commodities along with other risk assets.

``The credit crunch limits the availability to exporters and cooperatives of working capital,'' Restrepo said. ``We might see problems in coffee supply if it persists.''

Restrepo said $1.20-$1.50 a pound is an appropriate range for coffee in the next six months, given market fundamentals. He was in Tokyo to attend the World Specialty Coffee Conference. Arabica coffee for December delivery gained 2.4 percent to $1.1560 a pound on ICE Futures U.S. in New York Oct. 17.

Stimulate Demand

Arabica coffee for September delivery on the Tokyo Grain Exchange surged by the daily price limit of 1,000 yen, or 5.4 percent, to 19,440 yen ($191) a bag today.

Coffee may become the best-performing commodity in coming months as Brazilian output will decline cyclically and lower prices may stimulate demand, said Shuji Sugata, research manager at Mitsubishi Corp. Futures and Securities Ltd. in Tokyo.

``Coffee, along with sugar, has potential to rally regardless of a bleak economic outlook,'' he said by phone.

Coffee output in Colombia will probably fall to 12.1-12.2 million bags this year from 12.6 million bags last year because of heavy rains, Restrepo said.

``Next year we foresee a similar level of production very close to 12 million bags,'' he said, adding that the effects of adverse weather on production will probably continue.

Planting Program

The country will export 11.5 million bags this year, up 3.6 percent from 11.1 million bags the previous year, Restrepo said. Exports next year will fall to 11 million bags, he added.

Coffee production in Colombia will stay around 12 million bags until the nation completes a program to raise productivity through replanting trees, Restrepo said.

Under the program started this year, growers eradicate old, unproductive plantations to replace them with new trees, Restrepo said. They will renovate 30,000 hectares this year and expand the area to 300,000 hectares by 2012, he added.

``That will steadily increase Colombian output,'' he said. ``By 2016 it should be above 16.5 million bags.''

To contact the reporter for this story: Aya Takada in Tokyo at atakada2@bloomberg.net