Bloomberg News

Coffee-Price Gap to Narrow at Slower Pace, Morgan Stanley Says

March 27, 2012

A gap between coffee prices is set to narrow at a slower pace on stronger demand for arabica beans and higher sales of the robusta variety from Vietnam, Morgan Stanley said.

The difference shrank by 22 percent in the past month as farmers in Vietnam, the biggest global robusta grower, withheld crops and traders sold arabica beans in anticipation of a record Brazilian harvest. Arabica was 88.16 cents a pound more expensive than robusta by 9:08 a.m. London time, down from 113.34 cents a month ago, data on Bloomberg show.

“We expect this decline to slow in the coming months as oversold arabica prices are likely to spur incremental demand with further downside risk to production remaining in Brazil and Colombia and as Vietnamese robusta producers start to increase sales,” Hussein Allidina, head of commodities research at Morgan Stanley in New York, wrote in a report e-mailed yesterday.

Dry weather in Brazil, the world’s biggest coffee grower, continues to threaten production even as the government predicts a record crop, Allidina said. National output will likely rise to a record 49 million to 52.3 million bags in the season starting in July as trees enter the higher-yielding half of a two-year cycle, the government estimates.

Output in Colombia, the second-biggest arabica producer, may “struggle” to reach 8.1 million bags, compared to 8.9 million bags in the previous season, Morgan Stanley said.

Farmers in Vietnam are likely to increase sales before harvesting starts in Brazil and Indonesia, the third-largest robusta producer, Allidina said. A bag of coffee weighs 60 kilograms (132 pounds).

To contact the reporter on this story: Isis Almeida in London at ialmeida3@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at oir ccarpenter2@bloomberg.net.


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