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Coffee may weather economic storm Add to ...

Global coffee output may slip around 4 per cent in the year to next September on crop revisions in top two producers Brazil and Vietnam, while resilient consumption could offer some respite to prices already dented by Europe’s debt crisis.

Concerns over production would dictate the long-term outlook as Vietnam, which has seen rising output in recent years, cautioned that exports would dip in coming years as domestic consumption rises and output falls due to a replanting programme.

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“World production is something we should worry,” Roberio Oliveira Silva, executive director of the International Coffee Organization, told a conference in Ho Chi Minh City.

Silva later told Reuters global consumption is expected to rise steadily next year despite the economic slowdown to match the 2.5 per cent annual average growth seen in the past decade. Last year, the world consumed 135 million bags, up 2.4 per cent from 2009.

“Consumption is going to be very well despite the economic turbulence,” he said.

Russia and China have seen rising consumption of coffee and are cited by industry officials and traders as promising markets.

The ICO pegs global coffee output at 127.4 million bags in the current year from 133.2 million bags in the previous season, with production in Brazil forecast to fall 10.3 and Vietnam seen down 5 per cent.

Rainfall impact Colombia, whose production woes blamed on heavy rains initially triggered rallies in New York arabica futures, saw output forecast revised down by the ICO to 8.5 million bags, but more or less unchanged from 8.523 million bags in the previous season.

“Rains will not hurt the quality but the quantity of beans,” Santiago Pardo, Asia representative for the Colombian Coffee Growers Federation told Reuters.

The Colombian government’s aim was to raise coffee output to 14 million bags by 2014 by rejuvenating trees, bringing in new varieties and using more fertilisers to boost yield, he added.

The ICO revised up output forecast for third-largest producer Indonesia to 8.75 million bags, though it was still down 4.2 per cent from 9.129 million bags in the crop year to September 2011.

“As we know, the general market sentiment is still weighing on softs. We already know for arabica, the crop hasn’t been going very well, and for robusta it’s the opposite,” said Lynette Tan, an analyst with Phillip Futures in Singapore.

“It’s just that they are not selling in the physical side. As we know, eventually they need to sell. Maybe for the near-term, robusta will still be inching up slightly because of the physical side holding on to stocks,” said Tan, referring to top robusta producer Vietnam’s stockpiling moves to support prices.

Dealers said farmers in Vietnam are waiting for London futures to rebound further, keeping differentials steady at between $10 and $40 (U.S.) to the March contract. The differential had been expected to widen to at least $100 as the harvest progressed.

Tighter bank credit faced by exporters and some foreign buyers this year have also led to slower sales, with up to 200,000 tonnes estimated to have been sold from the new crop, about half the volume transacted in the same period last year.

London robusta futures have bounced from an 11-month low around $1,780 a tonne in November, but the contract has slid around 25 per cent since hitting a 3-year peak in March

Coffee and other commodities have been driven lately by fears that Europe would not be able to solve a crippling debt crisis, as European leaders meet on Friday to find ways to end it.

Pessimistic comments from EU paymaster Germany and new figures exposing deepening stress among Europe’s banks dampened financial market hopes of a turning point in the euro zone’s debt crisis at the EU summit.

As global prices gyrated, Vietnam’s industry officials warned about possible supply constraints, saying that the country’s output has peaked.

Doan Xuan Hoa, a deputy director at the Agriculture Ministry said Vietnam’s coffee yield has hit its limit of 2.5 tonne per hectare and 30 per cent of the country’s more than 500,000 hectares (1.24 million acres) of coffee needed replacements,

“Increasing output beyond this limit is difficult,” Hoa said.

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