Lower supply should support prices in 2007

Brazilian coffee market keeps focusing on the next crop. Due to the coffee's biannual cycle, the crop production should be lower than the current one. The Conab (National Company for Food Supply) will publish, on December 15th, the first estimative about the 2007/08 crop. The blooming's bad formation during this year reduced even more the crop production. Some agents point a reduction of 50 percent over the current crop.

Besides the next year's crop weak production, the current global stocks are also too low. According to the International Coffee Organization, until the last week, the grain stocks in export and import countries totaled 38.89 million bags, the lowest volume of the last 15 years.

This context of reduced supply should support prices in 2007. In Brazilian market, the CEPEA/ESALQ Index for robusta averaged 96.31 dollars per bag of 60 kilos on Thursday, November 30th, up 8 percent over October 31st. For arabica, the average was of 132.51 dollars, increasing 17 percent in the same period.

Due to the intensification of harvest activities in Vietnam, the main global producer of robusta coffee, and the forecast of larger world crop production in 2006/07, prices differential between arabica and robusta coffee should enlarge in the next months. From the beginning of November until Nov 24, this gap had already increased to 63.84 reals per bag.

According to the United Stated Department of Agriculture (USDA), the Vietnam crop production should amount 16.5 million bags of 60 kilos in the 2006/07 crop, volume 22 percent higher than the previous crop (2005/06). Brazil should also harvest a larger crop production of robusta for the next year.

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