Price Plunge Sends World Coffee Exporters to Emergency Meeting

A six-week free fall in coffee prices has sent major producing nations to Bogota, Colombia, for an emergency meeting Sunday to cope with the plunge.

Premium coffee growers Costa Rica, El Salvador, Honduras, Nicaragua and Colombia have already suspended exports in an effort to shore up prices, which in the last three weeks have tumbled 16% for futures contracts traded on the Coffee, Sugar and Cocoa Exchange in New York.

But Brazil, the biggest grower, has not signed on to the deal, undercutting any effort to bolster prices. The Brazilians have been invited to the weekend meeting in the hope they can be persuaded to join the organized export suspension.

Brazil has announced independently that it will hold 1 million bags of coffee off the market from its usual 17.6-million-bag crop.

“We are in a difficult situation,” said Jorge Cardenas, who heads the National Coffee Growers Federation in Colombia, the world’s second-largest producer. “We as producers have to respond, but we also have to avoid panicking.”

Analysts said consumers won’t benefit any time soon from the price plunge. Unroasted coffee beans account for just a fraction of the retail price, and roasters meanwhile are selling beans they bought at higher prices.

Mexico, which accounts for about 5% of world coffee production, will not participate in the suspension, said Jenaro Hernandez de la Mora, executive director of the Mexican Coffee Exporters Assn., even though he called the current price situation “deadly.”

“The price still covers production costs, barely,” he said.

While that is an improvement over four years ago when record-low prices left many producers debating whether they should bother to harvest their crops, it is devastating for countries such as Ethiopia, which depends on coffee for 70% of its exports.

El Salvador’s National Coffee Council estimates that country has lost $40 million in the past five weeks because of plunging coffee prices. Those factors compel coffee producers to try to find a way to stabilize prices.

On Friday, the nose dive was interrupted in response to the planned meeting; prices for contracts with September delivery rose 8.8 cents to 129.85 cents a pound in New York after plunging to their lowest level in a year. Prices have fallen by a third since March and the slide has accelerated since June.

Still, analysts said natural market forces--notably dwindling U.S. coffee inventories--will soon prompt roasters to begin buying again, boosting demand and bolstering prices.

“Inventories in the United States have reached a five-year low,” said Ronald Veit, chairman of Paragon Coffee Trading in White Plains, N.Y.

In addition, Veit noted, the Brazilian winter is far from over and another frost like last year’s--which wiped out nearly half the crop--could bring on a coffee shortage.

“Anyone who continues to sell into this market is taking a tremendous risk because the peak of the Brazilian frost season is still ahead,” he said.

Last year’s frost sent coffee prices soaring. Maxwell House, for example, hiked prices half a dozen times between July--when the frost hit--and September.

In any event, Veit said consumers should not expect much benefit from the price plunge in the near term.

“In the long term, it depends,” he added. “A lot hinges on the outcome of this weekend. The market could as easily pick up 20 cents as go down 20 cents. The coffee market is the least predictable and most volatile of all commodities, period.”

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Blame It on Rio

Aided by a Brazilian export flood, the price of coffee futures has dropped nearly a dollar a pound in the past 10 months. Friday’s close of $1.2985 means additional pressure on smaller coffee-producing nations, which have stopped exporting coffee in an effort to drive up prices. Weekly closes on the New York Coffee, Sugar and Cocoa Exchange (futures price per pound): Friday’s close: $1.2985

Source: Bloomberg Business News

Researched by DAVID NEIMAN / Los Angeles Times