Coffee prices to stay under pressure as world supplies fall

- Last updated on GMT

Related tags: Coffee

Expectations of a fall in global coffee supplies of coffee will
keep up pressure on market prices, as fresh figures indicate world
coffee production will drop in 2005/06.

Forecasts from the US department of agriculture pitch production for the period at 113.1 million bags (60 kilograms), down about 6 per cent, or 6.7 million bags on the previous year.

Most of the decrease is attributed to the drop in Brazil's 2005/06 coffee production level to 36.5 million bags, a 14 per cent fall on 2004/05.

Since Brazil is the largest coffee producer, swings in its supplies of coffee account for a large portion of the change in the total global supplies.

Prices for coffee are recovering after a sharp decline in the past five years that saw the market plunging into a crisis forced by oversupply and low prices.

In recent month the prices have picked up, largely fuelled by industry expectations of a global supply deficit this year.

The International Coffee Organization expects world consumption of between 114 million and 115 million 60 kg bags, which would exceed projected output by 7 million to 8 million bags.

"Due to the lower crop and forecast higher domestic consumption, carry-over stocks at the end of 2005/06 are forecast to decline to 4.8 million bags, sharply down from the previous year,"​ says the USDA.

Filtering down to the consumer, in recent months beverage makers have hiked up their prices. At the end of last year Kraft Foods said it would raise the price of a 13-ounce jar of Maxwell House coffee by 14 per cent to $2.29, in response to a surge in the price of coffee beans.

The firm's announcement comes on the heels of a 14 per cent increase in ground coffee prices in early December by Folgers, a division of Proctor & Gamble. In October, Starbucks Coffee raised its retail prices by around 5 per cent.

Related topics: Market Trends

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