Colombian rains push coffee to a 13-year peak

By Naomi Mapstone

Published: December 30 2010 14:57 | Last updated: December 30 2010 19:01

The wettest rainy season on record has knocked expectations for the crucial Colombian coffee crop, pushing prices to 13½-year highs.

The price of higher-quality Arabica coffee has risen 80 per cent since mid-June on the back of critically low inventories following a series of disappointing harvests in Colombia, the biggest producer of high-quality beans.

That has forced roasters to bump up the retail price of coffee. JM Smucker, Kraft and Starbucks have all announced increases this year, while Lavazza, Italy’s largest roaster, said recently it would raise prices by 9-16 per cent from the start of 2011.

Torrential rains in Colombia, which have killed hundreds and displaced millions since April, have also disrupted infrastructure vital to the coffee industry. A landslide recently closed the four-lane “coffee highway” in the central region of Caldas, underscoring the challenges facing Colombia’s coffee producers.

The rains are also raising fears of humidity-related diseases such as coffee rust, which has ravaged recent crops. “We are very worried,” said one coffee industry worker from the central region of Quindio. “No one is at fault here. We have worked to improve productivity in each finca [farm] and replant more disease resistant trees, but against this terrible winter, we have no answers.”

Supplies of Colombia’s prized, handpicked Arabica beans dropped last year to a 35-year low of 8.1m bags, each of 60kg, down from 12.5m just two years earlier. The National Coffee Federation of Colombia says production increased to 9m bags in 2010, but that the outlook for 2011 was “not very favourable”.

Kona Haque, agricultural commodities analyst at Macquarie, said: “What started off as yet another ‘bad’ year for Colombia’s arabica crop this season seems increasingly symptomatic of a structural decline.

“While undoubtedly wet weather has impaired the harvest, we suspect that poor crop investment, rising costs, access to labour and urbanisation are some of the more long-term factors at play.”

Ideam, Colombia’s meteorological office, has forecast that rains fuelled by the La Niña weather phenomenon will continue until at least March, the start of the first harvest for 2011, or possibly until June.

Keith Flury at Rabobank said record-low inventories would support prices. Certified stocks have dropped to 1.7m bags from 3.1m at the start of 2010. On Thursday, ICE May Arabica coffee rose to an intraday peak of $2.43 a pound, just short of the 13½-year high of $2.435 touched last week. Liffe March robusta coffee surged 6.3 per cent to a two-year peak of $2,152 a tonne.

In other commodity markets, precious and base metals looked set to close out the year in bullish form, with copper hitting a new record and silver and palladium both at multiyear highs. Copper for delivery in three months on the London Metal Exchange reached a peak of $9,550 a tonne, up 1.4 per cent on the day, while silver gained 1.1 per cent to a fresh 30-year high of $30.88 a troy ounce.

Sugar tumbled from a 30-year peak as profit-taking took hold. ICE March raw sugar dropped 7.6 per cent to 31.28 cents a pound.

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