Coffee Prices set to Continue Slide - Traders

Coffee prices look set to continue sliding in the near term, given the lack of progress towards a new International Coffee Organization (ICO) export quota accord, according to coffee traders and analysts.

Robusta coffee futures dipped sharply to 4-1/2 year lows yesterday at 1,220 stg per tonne, basis the May position, when the lack of new debate on quotas at ICO talks here confirmed expectations that efforts to restore quotas would not be revived at this stage, they said.

The 15-day ICO average composite price fell to 99.69 cents a lb for April 1, the lowest for 5-1/2 years.

Quotas will not now be renegotiated before the ICO’s annual September council session, and in the interim the Brazilian frost season from June to August may prove the only bullish factor to stem further price weakness, they said. Futures bounced back from the lows today towards the previous trading range around 1,260/1,270 stg per tonne on May as the market recovered from yesterday’s “confidence blip,” one trader commented.

But despite today’s upturn, the overall trend is for lower prices in the near future, one trade source said.

The market had become increasingly vulnerable to yesterday’s shakeout, having held within a 1,250/1,350 stg second position trading range for 22 successive sessions, he said.

Technically the market is more likely to decline further as it absorbs today’s brief rally. Steep declines towards the 1,100/1,050 stg area could foster a “three figure mentality,” and speculators may elect to push for coffee prices below the psychological 1,000 stg level, he added.

Some traders said today’s upturn was in part due to Brazil’s opening last night of May green coffee export registrations.

This had been widely anticipated by the market and came as no surprise, but it did remove some prevailing uncertainty and light trade buying was seen this morning as a consequence.

However, the overall trend remains downwards and a test of support at 1,200 stg should be expected soon, with the only possible supportive influence on the horizon being the approach of Brazil’s frost season, they said.

Roasters are believed to be well covered, limiting activities to modest hand-to-mouth purchases and generally not taking up producer offers, they added.

Central American producers have sold the bulk of their current crops, but robusta producers in West Africa and Indonesia need to sell coffee for April through July shipment, and this could pressure prices further, traders said.

However, one dealer, although seeing no reason to be bullish, advised caution. “Everybody’s bearish now, just as they were bullish when the market was at 3,100 stg,” he said.

Arthur Cherry, coffee analyst at E.D. and F. Man, expressed doubts the price spiral would continue much below current levels. “One dlr coffee is catastrophic for many producers – there must be a minimum below which prices cannot fall.”

While prices dropped to the lowest levels since September 1982 yesterday, manufacturers have no plans to cut their retail prices.

“Its impossible to say, we can’t predict anything like that at this stage,” a General Foods spokesman said.

Manufacturers have lowered prices recently anyway in response to market weakness. At the beginning of March the price of a 100 gram jar of coffee was cut to 1.55 stg from 1.65 stg in Britain. But should coffee market prices continue to fall, the situation would be reviewed, the spokesman added.

Nestle also has no plans to make additional price cuts in the near future.

“The market seems to have established some equilibrium and doesn’t look set to go much lower,” a Nestle spokesman commented.

Coffee’s plunge this week has been mirrored by tea, which fell to a 5-1/2 year low at today’s auction at 1.18 stg per kilo for medium quality, traders added.