BMI Coffee Market Comment

June 20th

“Now that prices have broken though key support around USc253/lb, we feel that both technical and fundamental factors are pointing towards lower prices in the coming weeks.

In terms of fundamental factors, the 2011/12 harvest in Brazil (which runs from May to August) is well underway and this will boost global coffee supply in the coming weeks. Combined with an improvement (albeit modest) in Colombian coffee production in recent months, this has seen coffee stocks at the US Intercontinental Exchange (ICE) reverse their multi-year downtrend.

From a technical perspective, we have been highlighting that weekly momentum indicators were turning negative, with a bearish divergence on the weekly RSI and a bearish crossover on the MACD. More recently, front-month (July) coffee has broken below multi-month support around USc253/lb and in so doing, breached neckline support of a head-and-shoulders reversal pattern. A weekly close below the current level of USc250/lb would see us target additional downside towards the USc200/lb level over the coming weeks.”


BMI Services

Global demand for coffee keeps growing

The global demand for coffee keeps growing. Over the last 12 months the price has doubled but the demand still remains unsupplied.
 

The rapid change of lifestyle in China and other developing Asian economies helps to increase the consumption of coffee.

According to the International Coffee Organization, in 2010 the global consumption of coffee grew by 2.4% up to the record volume of 134 million bushels (1bushel = 60kg). It means that the market of coffee keeps rallying despite high prices.  According to the ICO’s chief economist, the average pace of consumption growth seen over the last 10 years is 2.5% a year. He says that the tendency will probably continue in the future.
In some countries drinking coffee is a tradition and people won’t abandon it just because of high prices.
 
John Calvert, President of Starbucks Coffee International (SBUX.O), said that the world’s biggest coffee-house network was planning to triple the amount of its coffee houses in China from 450 up to nearly 1500 by 2015.
The price growth also failed to reduce the consumer demand in India even though some expensive kinds of coffee (like Arabica) were replaced with cheaper ones like Robusta. The consumption of coffee in India grew mainly because some Indians reduced the consumption of tea.
The Scandinavian countries are currently the main coffee consumers per capita (especially Finland) while the USA and Brazil are the leaders in terms of the net consumption of coffee.
The demand for coffee remains high in the traditional markets such as Germany, where the consumers haven’t seen a significant price increase thanks to the tough competition between the local retailers.
However, it should be noted that only a small part of the increase in the price on coffee beans penetrated into the retail prices on coffee products.
For example, in early May Nespresso Nestle increased its prices only by 6% while Tchibo, Germany’s biggest roaster, announced that the high prices on coffee beans would probably reduce its profits in 2011.
The global production of coffee tried to catch up with the growing demand for it. It was especially difficult for Brazil and Columbia to supply the high-grade coffee “Arabica”.
At this point any major rally in the market of coffee is hardly probable as the market is waiting for another harvest campaign in Brazil, which is the world’s leading coffee producer and exporter.  Now the most probable scenario is a flattish movement in the 260-280 price range. A retracement is probable in long-term perspective, which will be caused by new supplies of coffee.

Bean counters grind out coffee price hike

The soaring price of coffee beans forced Shawn Hershberger, owner of Cafe 1320 in North Canton, Ohio, to create a new menu.

“Our coffee just went up 40 cents a cup,” Hershberger said.

Coffee prices have jumped repeatedly in the past 18 months.

On May 24, the J.M. Smucker Company announced an average of 11 percent increase on Folger’s, Dunkin Donuts and Millstone coffees, their fourth increase this year –– Smucker’s owns those domestic coffee brands. The next day, Starbucks announced a 17 percent increase on its bagged coffee.

Joe Marchion, owner of the Hartville Cafe and Arabica Coffee House in Canton, said the price jumps in the last 18 months are the worst he has seen in his 11 years in the coffee business.

“It’s unbelievable. We’ve had to increase the cost of our coffee 10 cents a cup,” Marchion said. “We held back as long as we could, but being a small family-run cafe, we don’t have the buying power of big chains and can’t absorb that kind of increase.”

At Pete’s Restaurant in Canton, coffee also just went up 10 cents a cup.

“We went from $1.30 just to $1.40 — didn’t want to scare away our customers,” manager Heather Stirbens said.

Hershberger knew he’d have to raise his prices after getting a letter from his supplier, K&M Coffee Service Company in North Canton.

“They are good people, very passionate about what they do, but (they) sent us a letter that said, ‘Folks, it’s going to be rocky for a while.’ We’ll absorb what we can, but prices will go up,” Hershberger said.

Bob Grimsley, whose parents founded K&M 43 years ago, said he resisted raising his price until five weeks ago.

“What I try to do is ride the market for a while, absorbing the increases, banking it will come back down –– what goes up must come down. Unfortunately, this time I was wrong,” Grimsley said. “We raised our prices five weeks ago, and we’ve got another (increase) coming.”

Grimsley said the coffee shortage is real, and the market is continuing to rise.

“The Colombian bean was the hardest hit. They lost about 40 percent of the harvest,” he said.

How have customers reacted to the higher prices for a cuppa joe?

Stirbens, manager of Pete’s Restaurant in Canton, said most understand “because they notice the increases at other places and when they go to buy it at the store.”

Marchion, owner of the Hartville Cafe and Arabica Coffee House in Canton, said some accept it, some don’t.

“You do lose some customers,” he said. “Some say $2 is too much for a cup of coffee, but Arabica beans are very expensive, and our costs have gone up $2 a pound.”

Are customers drinking less coffee or switching hot tea, instead? No, says Stirbens.

“They still want their coffee,” she said. “We’ve seen some increase in ice tea, but that’s just due to the weather.”

Grimsley agrees.

“In this economy, people might be giving up their vacations,” he said, “but they’re not willing to give up the small luxuries of life like that cup of coffee.”

Coffee Growers Pick 25% of Crop in Brazilian Region

Coffee growers in Minas Gerais, Brazil’s main arabica-producing state, have picked 25 percent of the planted area, according to weather forecaster Somar Meteorologia.

“The dry weather observed in the last few days has favored the coffee harvest, which runs smoothly in all the coffee- growing regions of the Southeast,” agronomist Marco Antonio dos Santos said in a report e-mailed today. The Southeast region includes the state of Minas Gerais.

Yields are between 20 and 30 bags per hectare (2.47 acres), a normal level for a low-cycle year, Somar said, citing unidentified producers and agronomists.

Brazilian coffee output will drop to 43.5 million bags this year from 48.1 million bags last year as trees enter the lower- yielding half of a two-year cycle, the Agriculture Ministry’s crop-forecasting agency, known as Conab, said in May.

Lower temperatures this year are resulting in better quality beans, Santos said in the report.

There are no signs of rain that could slow down pickings or drying of the beans in the next few days, he said. There are no signs of frost in the next 15 days either, he added.

To contact the reporter on this story: Isis Almeida in London at email hidden; JavaScript is required

To contact the editor responsible for this story: Claudia Carpenter at email hidden; JavaScript is required.

Investors Bail on Coffee

Arabica coffee futures hit a 4-1/2 month low and robustas also slid to a 4-month low Monday due to investor liquidation, but cocoa and raw sugar futures climbed on suspected consumer buying.

Cocoa futures in the U.S. rose as industry buying forced shorts to cover positions, although prices were near 5-month lows hit earlier this month. Sugar was buoyed by consumer buying and a slow start to Brazil’s harvest, dealers said.

New York’s September arabica futures declined 4.00 cents to trade at $2.485 per lb at 12:46 p.m. EDT (1646 GMT), having traded at a session low of $2.4705 which is the lowest for the second position coffee contract since Feb. 1.

 London’s September robusta contract dropped $66 to close at $2,276 per tonne, having hit a session low at $2,269, the lowest level for the second position since mid-February.

“I do think the coffee market has lost a lot of its luster and appeal,” Country Hedging Inc analyst Sterling Smith said. ”While supplies remain tight, unless we see a well-defined weather threat from Brazil, the market does not appear to be too nervous at these levels.”

Coffee was also weighed down slightly by news euro zone finance ministers have postponed doling out emergency loans to Greece until the country approves new austerity measures.

“For softs, the link to the Greek debt problems is weaker than for metals and energy, but there is a link,” said Romain Lathiere, fund manager with Diapason Commodities Management.

Temperatures in top grower Brazil’s coffee belt are forecast to be normal to above normal for the next seven days, with no indication of a freeze threatening the region for the next 10 to 15 days.

It is winter in Brazil, which brings the potential for crop-damaging frost but current conditions have taken a lot of risk out of the market.

Volume in the U.S. arabica market was also heavy and already running over the 30-day norm about two hours before the conclusion of trade, Thomson Reuters preliminary data showed.

Sugar futures vaulted higher, with the market propped up by ongoing congestion at Brazilian ports, and concerns over low yields after a slow start to the harvest in the world’s top sweetener producer.

“It seems that sugar is continuing to shrug off weakness in other commodities,” Nick Penney, of brokerage Sucden Financial said. “The markets are technically overbought, however, and we anticipate a correction in the near future if momentum fails to be maintained.”

London’s August white sugar futures went up $12 to close at $739.60 per tonne, having set a three-month top for the spot contract at $741.40. New York’s July raw sugar contract climbed 0.87 cent or by 3.3 percent to trade at 27.24 cents per lb at 12:48 p.m.

July sprang over the 100-day moving average at 26.69 which touched off automatic buy order stops and is now threatening to race past the 200-day moving average at 27.56 cents, Thomson Reuters data showed.

The July raw sugar contract in New York is due to expire next week. Open interest stood at 93,038 lots as of June 20. At the rate positions are being unwound in the market, brokers feel deliveries may not top 10,000 lots on June 30.

Cocoa futures climbed in rangebound dealings on short-covering as the market ignored the bearish fundamentals from a large global surplus widely expected in the current 2010/11 crop year.

“Every time the market comes down to about $2,900 or a bit under, shorts begin to have profit,” Smith said, adding there is pretty good support in the area.

New York’s September cocoa futures rose $51 to end at $2,968 per tonne. London’s September cocoa futures gained 28 pounds to close at 1,857 pounds per tonne.


© Thomson Reuters 2011

Brazil Could See Stronger Winter Cold Fronts In Coffee Regions

SAO PAULO (Dow Jones)–Brazil could see stronger cold fronts coming from the south this winter as the regional climatic pattern moves into a new cycle, meaning a somewhat increased risk of frost in the southeastern coffee regions.

Frost is rare in the arabica-producing belt of southern Minas Gerais state and neighboring Sao Paulo state, where around 40% of Brazil’s coffee is grown. But it’s devastating for sensitive coffee plants and can wreak havoc in even more sensitive international coffee markets, given Brazil’s position as the No. 1 global producer of java.

Olivia Nunes, a meteorologist at Somar Meteorologia, said southeastern Brazil said temperatures could remain low this year because the atmosphere is entering a neutral phase of the El Nino-La Nina climate cycle. The most recent La Nina ended around April, and so cold fronts sweeping north from Antarctica are more likely to penetrate inland to the coffee country, rather than be pushed east over the Atlantic Ocean.

“This makes cold waves more intense during the winter over the center and south of the country, especially in July and August,” Nunes said. “In a neutral year, the risk of frost in coffee regions is high and requires monitoring.”

Rainfall should be normal for the southeastern Brazilian winter, which is drier than summers and provides good conditions for coffee beans to dry. For frost to occur, Nunes said, there must be little wind and minimal cloud cover.

A cold front passing over southeastern Brazil early this week has made for some chilly mornings in the city of Sao Paulo, with temperatures dipping into the upper 40s. Inmet, the National Meteorology Institute, posted frost warnings for mountainous areas of Sao Paulo state and southern Minas Gerais state, though Nunes said there was no risk yet to the lower-elevation coffee farms.

“We can’t yet say when these fronts will come with greater intensity,” she said. “There’s the possibility, but it’s risky to say now whether they’ll be strong frosts or just isolated ones.”

A meteorologist at Inmet in Sao Paulo also said this winter’s cold fronts may be more intense than in previous years, added that temperatures are likely to be more volatile.

Traders in Brazil are accustomed to keeping an eye on the weather, after deep freezes in 1975 and 1994 sent coffee prices soaring.

John Wolthers, of Santos-based exporter Comexim, said he hasn’t heard anything in particular to suggest a dangerous winter, though a freeze could be disastrous, as Brazil’s coffee plants are in the second, low-output year of their two-year production cycle.

“Obviously, people are very worried because if anything happens at all this year, it’s the worst year ever,” Wolthers said. Global prices are already high, before the outcome of Brazil’s crop for the year has become clear, so any trouble could lead to even higher prices.

The Agriculture Ministry’s Conab agency forecasts Brazil will harvest 43.5 million 60-kilogram bags of beans this year, compared with 48.1 million bags in 2010.

Gustavo Moretti, a trader at Interagricola, also in Santos, said that while the risk of frost always exists, the forecasts he’s seen don’t suggest a very dangerous year. “Overall, we aren’t doing crazy hedging positions or anything,” he said.


-By Paul Kiernan, Dow Jones Newswires


World craves ever more coffee despite soaring price

(Reuters) – Global demand for coffee is set to keep climbing and even a doubling in the cost of the commodity over the last 12 months has failed to quench consumers’ thirst for the beverage.

Faster paced lifestyles in China and other Asian economies where economic growth has been strong have helped to keep consumption of coffee firmly on an upward path.

The International Coffee Organization estimates that global coffee consumption rose 2.4 percent to a record 134.0 million 60-kg bags in 2010 and it sees the upward trend continuing despite the rise in prices.

“There’s no impact (from high prices) in terms of a reduction in demand. Demand is still very dynamic,” ICO chief economist Denis Seudieu said.

“We base our estimates on what’s happened in the last 10 years and the average growth rate is 2.5 percent per annum. We think that trend will continue,” he added.

The growth in demand in China, where coffee is drunk chiefly in cafe chains or restaurants, is not expected to slow.

“Drinking coffee is a custom, and people who get used to ground coffee won’t change (that custom) just because of prices,” said Fu Jingya, secretary-general with the Coffee Branch of the China Fruit Marketing Association.

John Culver, president of Starbucks Coffee International (SBUX.O) said this month that the world’s largest coffee chain plans to more than triple its cafes in mainland China, from 450 currently to 1,500 by 2015. [ID:nN27175055]

FAST PACE

“I started drinking coffee two years ago when I graduated from university as I feel much more pressure and the fast pace of work and life,” a saleswoman, who gave her name as Mrs Yu, told Reuters outside a coffee shop at Chaoyangmen in Beijing.

A rise in prices has also failed to deter consumers in India although some blends have substituted cheaper robusta supplies for more expensive arabica coffee.

“We have not noticed any significant drop in demand. The only change would be greater use of robusta in the blends to offset the higher prices of mild arabica,” said Sahadev Balakrishna, chairman of the Karnataka Planters Association.

Nandkumar Palkar, a telecoms engineer based in Mumbai, said his coffee consumption had gone up in the last two years mainly at the expense of tea.

“For years I was taking tea. Actually I was taking excessive tea. So I have cut down tea intake, that’s why I started coffee,” he said.

Scandinavian countries are the world’s top coffee drinkers on a per capita basis, led by Finland, while the United States and Brazil are the top consumers in absolute terms.

Demand for coffee has also remained strong in mature markets such as Germany, where consumers have been largely shielded from price rises by fierce competition between retailers.

“Rising futures are largely being absorbed by roasters because retailers will not accept price rises,” one German coffee trader said.

“The roasters are simply having to take the pain.”

Elsewhere as well, only a small portion of the rise in the cost of the commodity has filtered through into retail prices.

Nestle’s (NESN.VX) Nespresso, for example, earlier this month announcing a rise of about 6 percent.

Germany’s largest coffee roaster Tchibo said last month that surging coffee futures are likely to cut its profits this year.

TIGHT SUPPLIES

Coffee production has struggled to keep pace with the steady growth of demand. Supplies of high quality arabica coffee have been particularly tight with key supplier Colombia suffering three consecutive below-par crops.

Production in some Central American countries has also been in long-term decline following a prolonged period of low prices between around 2000 and 2004.

Supply tightness helped to propel arabica coffee prices on ICE to the highest level in 34 years earlier this month with the benchmark second month peaking at $3.089 per lb.

The market has since fallen back slightly to around $2.68 per lb but remains at around double levels traded a year ago.

Coffee shop chain Gloria Jean’s coffees are pressing ahead with expansion plans in countries including Oman, Cambodia and Bangladesh while acknowledging that some specialty coffees are getting increasingly hard to obtain.

“It hasn’t been an easy year-and-a-half on coffee pricing, but more than just the movement in the price, it’s the high specialty of coffee that we buy that is getting less and less available, and more and more competitive,” said executive chairman Nabi Saleh.

Teddy Esteve, chief executive officer of ECOM COFFEE, a trading and processing house based in Mexico City, also did not expect high prices to stall the growth of coffee shop chain.

“I don’t think the prices of coffee have an impact on the growth of coffee shops. Those that plan on growing will not stop because of a momentary blip in coffee prices,” he said.

“These are long-term strategies. It’s not the coffee price of one year that will derail a long-term plan.”

A caffeine-gobbling microbe

By John Roach

Many people say they can’t live without caffeine, but few of us would actually perish in the absence of our morning coffee ritual. For the bacterium Pseudomonas putida CBB5 that isn’t the case. It really does live on caffeine, according to new research presented today. 

The caffeine-munching bacterium was found in a flower bed on the University of Iowa campus.

Ryan Summers, a doctoral student there, identified four digestive proteins that it uses to break down caffeine, which allows it to live and grow, he explains in a summary of his research presented at a meeting of the American Society for Microbiology in New Orleans.

“This work, for the first time, demonstrates the enzymes and genes utilized by bacteria to live on caffeine,” he writes.

Caffeine is composed of carbon, nitrogen, hydrogen and oxygen. The bacteria break caffeine down into carbon dioxide and ammonia. Ammonia is a compound of nitrogen and hydrogen.

Further testing showed that the compounds formed during the breakdown of caffeine are natural building blocks for drugs used to treat asthma, improve blood flow and stabilize heart arrhythmias. Since these drugs are difficult to synthesize chemically, Summers and colleagues think their bacteria could ease production of these drugs and lower their costs.

What’s more, the bacteria could be employed to clean up after us human caffeine junkies, Summers notes in the research summary.

“The caffeine digestive proteins could also be used to remove caffeine and related compounds from large quantities of waste generated from coffee and tea processing industries, which pollute the environment. The decaffeinated waste from these industries can be used as animal feed and for production of transportation fuel.”

World Bank Funded $46.3 Million Project Launched In PNG

Belfast (CoffeeNetwork) Up to 30,000 Papua New Guinea coffee and cocoa farmers are set to benefit from a US$46.3 million project which was launched on Tuesday in Goroka, one year after approval by the World Bank. Funded by the World Bank, the Government of Papua New Guinea, the International Fund for Agricultural Development (IFAD), and sources within the private sector, the Productive Partnerships in Agriculture Project (PPAP) aims to improve the livelihoods of rural communities by assisting coffee and cocoa farmers.

Currently over 80% of Papua New Guineans live in rural areas and are largely dependent on agriculture for their livelihoods. The PPAP will focus on areas dependent on coffee and cocoa production such as East New Britain Province, the Autonomous Region of Bougainville, Eastern Highlands Province, Western Highlands Province, Jiwaka Province and Simbu Province, with possible expansion to other areas subject to review. The project was also launched regionally in Kokopo and Buka, where farmers were able to hear firsthand details of the PPAP and were also able to ask questions regarding the project.

Agriculture accounts for approximately a third of GDP in Papua New Guinea. The sector is dominated by smallholder farming systems such as coffee and cocoa, with over 30% (coffee) and 20% (cocoa) of the total national labor force in the country involved in the production, processing and sale of these crops. The project aims to undertake a number of measures to support smallholder coffee and cocoa farmers including: strengthening links between smallholder farmers and agricultural businesses; increasing access to farming technologies and services; improving coordination of agricultural institutions; providing critical infrastructure for market access; and enabling the introduction of efficient and sustainable farming techniques which will lead to increased smallholder income.

The 6-year project will be implemented by the Department of Agriculture and Livestock; the Coffee Industry Corporation; and the Cocoa Board. Total project costs are estimated at US$46.3 million. These costs will be met through the International Development Association (IDA) credit of US$25 million, an IFAD loan of approximately US$14 million, additional financing from the Government of Papua New Guinea (US$1.5 million), and contributions from the private sector (including smallholder farmers) of US$5.8 million

A Fresh START at SCAA

A Fresh START at SCAA

Organization sees sustainability-tracking tool as a potential game-changer
By Chris Ryan

One of the marquee announcements of 2010’s SCAA Exhibition in Anaheim, Calif., was the formation of START, a multi-use tool that measures the impact of companies’ sustainability efforts and beyond. START (which stands for Sustainability Tracking and Reporting Tool) sprang from the efforts of the SCAA Sustainability Council, which wanted to create a project within the framework of the Millennium Development Goals (MDG), a United Nations initiative focusing on poverty elimination and environmental sustainability. START will allow users to: provide data on their own sustainability-related projects; track their progress based on a series of indicators; generate reports on their own programs for internal and external use; and view a geographical display of where SCAA members are working on MDG-related initiatives.
While SCAA announced the initiative last year, the organization will be formally launching it on April 28, the first day of the 2011 SCAA Exhibition in Houston. Fresh Cup talked to Sustainability Council member Sarah Beaubien of Portland, Ore.’s Coffee Bean International (CBI) about what to expect from the product unveiling, how the tool works and the project’s potential.

Q: What’s been happening with START since you announced it in 2010?
A: We’ve had members of the Sustainability Council set up accounts and start to log their information over the past six to eight months. So we have quite a bit of information already built in the tool, and the benefit of that is to be able to generate some graphs, maps and reports that we can show as part of the benefits of the tool. Having a set group of people start to enter their information allowed us to see how the tools worked and also work out any kinks or glitches. It’s a pretty robust database, so we basically wanted to make sure it worked before we launch it into the industry. There’s a nominal fee of $150 to sign up, which is basically just to cover administrative costs for the tool. This type of tool is tens of thousands of dollars for a large corporation that wants to build it for its own use. So it’s a benefit for members of the coffee community to be able to use it at a cost of $150. (The SCAA member rate is $150, $300 for nonmembers.)

Q: How will START be showcased at the SCAA Exhibition?
A: We’re going to have members of the Council who know the tool well at the SCAA booth, and they can walk people through the registration process and show them around the tool. We’re also going to have three lectures called Measuring Our Impact where we’ll give some history on the project, as well as some education about the tool and its benefits.

Q: So you’ll be focusing on getting companies signed up?
A: Yeah. Last year was kind of a tickler that the tool is coming. And now it’s time to get registered and get your data in. One of the things that I found really intimidating about the data part is that there are a lot of pieces. There needs to be somebody from the company—probably from accounting—who has access to the trash hauler bills and the electric bills, so that you can get the data on how much trash you’re generating, how much electricity you’re using, etc. All of that information has to be gathered by a company to be able to populate the tool. So we want to help people through that because that can be an overwhelming project if you don’t have a game plan for it.

Q: What sort of initial feedback are you getting on the tool?
A: It’s a pretty intimidating idea, and it’s progressive. A lot of companies—including us—have gone out on their own and done a similar project where they want to measure their impact to be able to set their own reduction goals. This is going to allow us to fold all that information that we’ve already collected into a different tool that’s part of a larger universe of data. So it’s going to be more useful to everyone.

Q: How are you persuading companies to sign up?
A: The most compelling thing about this is that it’s a perfect example of network effect. The more people that get involved with it and enter their data, the more powerful a tool it becomes. If we had every player in the industry from growers to retailers entering their information, then we’d have a really amazing view of what the industry looks like from a sustainability standpoint.

Q: What potential impact do you see this having?
A: I think we can talk in circles about the issues that we’re facing as an industry regarding quality, and some of the major issues of poverty and water shortages. But until we measure what our impact is and actually have a baseline for that, then it’s really an impossible task to try to tackle those issues. It’s really about getting that data gathered so we can start to tackle some of those larger issues that we’re having as an industry.