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ICO – Coffee prices reach two year highs, as El Niño threatens production

LONDON – Coffee prices remained highly volatile in April 2014, with the ICO composite indicator recording its highest monthly average in over two years, breaking last month’s record.

Continued uncertainty over the Brazilian crop has driven prices upwards, although the rate of increase has slowed slightly. Reports that an El Niño weather event might take place earlier than expected have also contributed to speculation over future coffee supply.

The resulting uncertainty over coffee production in several exporting countries has reinforced the likelihood of a global supply deficit.

The monthly average of the ICO composite indicator price reached its highest level since February 2012 in April, increasing by 3.4% to 170.58 US cents/lb. In terms of daily prices, the ICO composite covered a wide range, from a low of 154.56 cents on 2 April to a high of 178.96 on the 23, a difference of nearly 25 cents.

This performance has been mostly driven by the ongoing uncertainty over the Brazilian crop, with several market analysts reducing their forecast for 2014/15 production. The disruption to the Brazilian crop from the recent drought is also expected to affect the 2015/16 crop, and there are growing reports that the quality of the coffee, as well as the quantity, will suffer as a result

The three Arabica groups all recorded strong growth month on month, with Colombian Milds, Other Milds and Brazilian Naturals increasing by 4.5%, 4.4% and 4.2% respectively. This brings all three indicators to their highest levels in over two years. The monthly price of Robustas was virtually unchanged on March, averaging 105.55 cents/lb, its highest average since March 2013.

Furthermore, price volatility continues to be a significant factor, with all indicator prices recording higher monthly volatility compared to March

Total exports for the first half of coffee year 2013/14 are estimated at 53.2 million bags, 4.7% lower than the same period last year, although exports in March were estimated 2.2% higher.

Total exports in the first half of coffee year 2013/14 (October to March) came to 53.2 million bags, 4.7% less than the same period last year. As can be seen in Graph 4 below, the only group of coffee to increase over the time period was Colombian Milds, which were up 30.9% to 6.5 million bags, as production in Colombia continues to recover.

Exports of Other Milds were 9.9% lower than 2012/13, as coffee leaf rust in Central America had a significant detrimental effect on production. Brazilian Naturals were also lower by 2.8%, although shipments from the largest producer, Brazil, were actually up by over a million bags.

This brings overall exports of Arabicas to 34.2 million bags for the first half of coffee year 2013/14, 0.4% lower than 2012/13. Exports of Robustas were 11.6% lower, with decreased shipments estimated from both Indonesia and Vietnam.

Source: Ico