By Jean Guerrero

MEXICO CITY–An unusually aggressive attack of a coffee-eating fungus in Mexico’s top coffee-producing state of Chiapas is tempering expectations for the country’s 2012-2013 harvest, a top Mexican coffee official said Tuesday.
Rodolfo Trampe, president of the Mexican Association for Coffee Production, or Amecafe, said in an interview that output has the potential to rise up to 20% this season from 2011-2012, but that the outbreak of the fungus, known as roya, poses a threat to that forecast.
Last season, Mexico produced 4.3 million 60-kilogram bags, according to the International Coffee Organization. The coffee season in Mexico began Oct. 1 and runs through September of this year.
“We’ve had roya since the 1970s when it arrived in Mexico, but in an incipient form that producers could live with,” Mr. Trampe said. “This is a more virulent case, atypical.”
Chiapas, responsible for about a third of the country’s annual harvest, borders Central America, which began seeing widespread roya problems last season.
The largest Central American producers, Guatemala and Honduras, are seeing some of the worst and most unexpected of the damage.
The region from Mexico down to Colombia produces almost all of the world’s washed arabica beans, which fetch a premium to prices on the InterContinentalExchange and are used in gourmet, sometimes single-origin roasts.
Roya is known to cause long-term damage rather than immediate harm, so it is not yet a concern for traders. Arabica coffee futures are hovering at slightly above $1.50 per pound, half what they were two seasons ago.
But analysts say prices may react to the threat in the near future as the extent of the damage becomes clear.
“I think in the next couple of months, it is going to be important, because people are going to start looking at what kind of expectations we should be getting out of the 2013-2014 season,” said Keith Flury, senior commodities analyst for Rabobank. “If there’s much less expected production in these countries, I think it’s going to impact the market quite significantly.”
Moreover, he said, the current lower prices mean producers have less incentive to combat the roya outbreak, which requires repeated applications of an expensive fungicide. A lack of proper attention to plantations is expected to aggravate the problem.
“Producers are not interested in putting in these costly inputs into their crops if prices are sitting at around $1.50,” Mr. Flury said.

Coffee prices underwent further downward corrections in December 2012, with the monthly average of the ICO composite indicator price falling by 3.7% to 131.31 US cents/lb, compared to a level of 188.90 US cents/lb at the beginning of the calendar year, says the International Coffee Organization.

This brings the average price for calendar year 2012 to 156.34 US cents/lb, 25.7% lower than 2011, but still higher than any other year in the last decade, although costs of production may have increased over time.

Price falls were particularly pronounced in the three Arabica groups, with Robustas recording a smaller decrease of 1.1% compared to November.

On the New York futures market, which reflects the situation of Arabicas, the average of the 2nd and 3rd positions fell by 3.9% from 155.72 US cents/lb to 149.58 in December, triggering a narrowing of 7% in the differential with the London futures market.

In terms of market fundamentals, it may be noted that the new coffee crop from exporting countries whose crop year 2012/13 starts in October is beginning to arrive in greater quantities on the market.

This crop year has witnessed increased production in a number of countries, notably in Africa and also in Indonesia. Brazil is currently in the on‐year of its biennial cycle of Arabica production, and is set for a record crop of 50.83 million bags according to the official authorities. This comprises 38.34 million bags of Arabica coffee and 12.48 million bags of Robusta.

However, some countries in Central America have been affected by adverse weather as well as coffee pest and diseases, in particular coffee leaf rust and coffee berry borer, which could have an impact on production levels going forward.

Finally, India has reduced its post‐monsoon estimate of the 2012/13 crop to 5.3 million bags. As a result, the provisional estimate for world production in 2012/13 has been revised to 144.1 million bags, a 7.2% increase on 2011/12.

World consumption remains buoyant, particularly in emerging markets and exporting countries. Moreover, opening stocks in exporting countries for crop year 2012/13 are estimated at 15.1 million bags, the lowest level ever recorded.

Exports by all exporting countries reached 9.2 million bags in November 2012, compared to 7.9 million the previous year. This brings total exports for the 11 months of calendar year 2012 (January to November) to 103.5 million bags, an 8.5% increase on the same period in 2011.

A record level of 108.7 million bags of imports was registered by importing member countries and Japan in coffee year 2011/12.

HAVANA, Oct 29 (Reuters) – Hurricane Sandy decimated the Cuban coffee crop and delivered a major setback to renovation of old plantations when it ripped through the eastern part of the country late last week, according to scattered media reports.

The storm left between 20 percent and 30 percent of the crop on the ground, damaged processing centers and roads and felled thousands of trees upon plantations as it pummeled the Sierra Maestra Mountains, where 92 percent of the crop is grown.

The coffee harvest runs from September through January, but peaks in October and November.

Coffee production was already expected to weigh in at some 5,300 tonnes of semiprocessed beans, compared with 7,100 tonnes in the previous season and an initial plan of 8,500 tonnes.

Reuters now estimates output will be below 4,000 tonnes, the lowest in more than a century.

The official Granma newspaper reported on Monday that Guantanamo province, the country’s second producer after Santiago de Cuba, “lost 174,475 cans of beans” and “47 processing centers were damaged”.

Cuba often reports coffee output in cans, with 525 cans equal to a tonne.

Still-to-be-quantified losses were also reported in the eastern provinces of Granma and Holguin, the country’s third and fourth producers.

The devastation was far worse in Santiago, which took the brunt of the storm and where losses were still being tallied.

“Songo-La Maya is an agricultural municipality … The initial figures for coffee, its main crop, indicate a loss of 84,000 cans, while 4,500 hectares of plantations and another 650 in development are damaged due to the trees that fell on them,” the province’s newspaper, Sierra Maestra, reported on Sunday.

There are eight coffee-producing municipalities in Santiago de Cuba.

The National Information Agency, reporting from the Cruce de los Banos municipality on Saturday, said: “Initial estimates by municipal authorities indicate more than 300 hectares of coffee plantations damaged by falling trees and dozens of tonnes of mature beans felled and washed away.”

How much of the remaining and now quickly ripening coffee beans could be picked and processed, given the destruction Sandy left behind, was unclear.

Communist-run Cuba’s 35,000 growers, in exchange for low-interest government credits and subsidized supplies, must sell all of their coffee to the state.

The country’s plantations, which at the time of the 1959 revolution produced 60,000 tonnes of coffee, have steadily declined ever since.

Cuban President Raul Castro, as part of his efforts to improve food production and cut imports, has pointed to coffee as a crop ripe for increased attention and growth.

Cuba imported 18,000 tonnes of semi-processed beans from Vietnam in 2010 at a cost of $38 million, and slightly less in 2011, though no figures for that year are available.

The state has leased abandoned plantations over the last few years to hundreds of individuals to grow coffee and has nearly tripled the price it pays farmers for their beans.

Millions of dollars have been poured into replanting most of the country’s 74,000 hectares (183,000 acres) of plantations, which have been neglected for decades, and improving processing facilities. (Reporting by Marc Frank; Editing by Dale Hudson)

The Colombian Coffee Growers Federation (FNC) announced on 8 October that it will set up a new Price Protection Contract (CPP) to help farmers hedge risks against currency and price fluctuations. The Colombian peso is currently one of the most appreciated currencies in South America. Coupled with the depreciation of the American dollar – the currency against which international coffee prices are set – Colombian farmers have seen the payments they receive for their coffee steadily decline, while costs have increased. The new financial instrument will allow the country’s coffee growers to buy contracts to set a load price for the second, third and fourth month after the date they purchase the instrument. One load equals 125 kilograms of parchment coffee, and farmers will be able to purchase up to 50 loads per month to protect their income when they decide to sell their harvest. “This way, we hope producers can not only optimise their productivity and costs through ongoing and successful plantation renovation programs, but take advantage of volatility and favourable price situations,” says Luis G. Munoz, CEO of FNC. “[This] can guarantee them a minimum income to be chosen individually by every coffee grower.” The proposal for the new financial instrument was approved by the National Committee of Coffee Growers on 5 October. The new tool will set a minimum income according to the market price of the day the farmer buys the contract, or to prices 10 per cent lower or higher. The cost of every option will be published on a daily basis, the FNC said in a statement. Producers will be able to purchase the instruments from their farms, via their mobile phones and deducting costs from their intelligent Coffee Grower ID Card. As the CPP is designed to support the FNC’s goal in guaranteeing a minimum price, if the domestic price rises at the moment the producer sells the harvest, than the option is not exercised. When the domestic price falls, the producer will have the guaranteed minimum price as purchased. “The best scenario for a producer is that prices climb and he [or she] can sell [for example] in January better than in November,” says Julian Medina, the FNC’s Chief Financial Officer. “It is worth a reminder that, as with every protection instrument, the ideal would be not to have to exercise it. But we buy it to have a guarantee and avoid the risks. With current volatility of markets, the risk of having unfavourable price situations at the moment of selling the harvest is not minor.” In a telephone interview with Global Coffee Review, FNC’s Chief Communications and Marketing Officer Luis Fernando Samper said that the financial risk of the new instrument will be unloaded on market players, such as private finance companies and exchange operators.