Coffee May Jump 26% as Output Slows, Brazil Association Says

By Carlos Caminada

Jan. 14 (Bloomberg) -- Coffee may jump as much as 26 percent this year as Brazil, the biggest producer and exporter, harvests less of the bean and boosts consumption, said Nathan Herszkowicz, head of the country’s roasters association.

Prices may reach $1.45 per pound in New York near year-end after Brazilian producers finish selling a smaller crop, up from $1.1475 per pound yesterday, Herszkowicz, president of the Brazilian Coffee Industry Association, said in a Jan. 13 interview in Sao Paulo. The commodity will likely trade between $1.25 and $1.35 per pound in coming months, he said.

A global credit crunch prompted Brazilian farmers to use less fertilizer after prices for the additive surged, worsening the outlook for a coffee crop already likely to be lower because of a slower growth cycle and dry weather. The decline will come just as Brazil runs out of stocks, while domestic demand grows to match sales in the U.S., the biggest consumer of the beverage, as early as next year, Herszkowicz said.

“The fundamentals are supportive of a rise,” Herszkowicz, 58, said. “The outlook for supply is worrisome.”

Output may drop as much as 20 percent this year as most trees enter the slower half of a two-year growth cycle and farmers use less fertilizer to cut costs, according to the government. Coffee growers will harvest between 36.9 million bags and 38.8 million bags, down from 46 million last year, the Agriculture Ministry agency, known as Conab, said on Jan. 8.

Brazil’s consumption of coffee will likely rise to 21 million bags in 2010, up from 19.2 million this year, matching little-changed demand in the U.S., Herszkowicz said.

The average price for a cup of coffee in Brazil has risen just 30 percent during the last 14 years, lagging inflation of 280 percent and making the beverage still cheap enough to ensure consumption growth even as the economy slows, he said.

Exports will drop 3.8 percent in 2009 from last year, the country’s Coffee Exporters Council said last week. Excluding instant coffee, Brazil will export 25.1 million bags of beans, compared with a record 26.1 million bags in 2008, the council, known as Cecafe, said.

To contact the reporter on this story: Carlos Caminada in Sao Paulo at at ccaminada1@bloomberg.net