Higher demand and lower stocks marks 2007

During this year, the Brazilian coffee sector was uncertain about the 2007/08 crop production. The query throughout 2007 has been "Coffee production will be enough to supply both domestic and international markets?"

According to the latest report of the National Company for Food Supply (Conab), published in December, the domestic production totaled 33.7 million bags of 60 kilos. The inferior supply over the demand forced a consumption of great part of domestic coffee stocks.

At the beginning of this year, the Brazilian Coffee Industry Association (Abic) forecasted the domestic consumption at 17.4 million bags, 6.5 percent higher over the previous year. For the international market, its guess was 29 million bags. According to the Council of Brazilian Coffee Exporters (Cecafé), between January and November, Brazilian coffee exports amounted 25.4 million bags, enlarging 3.7 percent over 2006. Considering that national exports totaled from 2 to 3 million bags per month, it is possible that the Abic numbers will be confirmed until the end of this year.

Regarding prices, arabica did not reach the level of 300.00 reals or 153.80 dollars per bag, as expected. Because of the restrict supply and the strong increase in demand, growers bet on record values. However, the dollar depreciation did not make it possible.

With the aim of motivate growers trading, the Brazilian government established the Equalization Premium Paid to the Producer (Pepro) auctions. Growers and cooperatives that intend to join Pepro auctions must sell the product at more than 260.00 reals per bag until June of 2008 in order to receive the premium of 39.99 reals or 29.40 reals per bag, from the first and second auctions, respectively. Only one month later, some players got the premium offered by the Brazilian government, due to the increasing domestic prices.

Another issue for the Brazilian coffee market in 2007 was the weather condition. The lack of rain from August to October delayed blooming formation, which happened only in October. Even tough, the blooming was considered positive. The first official forecast about the next crop should be published at the beginning of 2008.

For robusta, between January and the first fortnight of December, the average was of 202.25 reals or 103.72 dollars per bag of 60 kilos, the highest value since 2001, when Cepea started gathering prices. The upward trend was linked to the higher domestic consumption.

Record values were also observed in the international market. At the London International Financial Futures Exchange (Euronext. Liffe), prices overtook 2,000 reals per ton in October, the maximum in 8 years. The support came from the lower supply in Vietnam, main global producer, due to the adverse weather (drought during the crop development and strong rains in the harvest).



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