Dec. 20 (Bloomberg) -- Coffee prices, now at a five-year high in New York, may rise further as the weakening dollar prompts growers in top producer Brazil to hold onto their beans, Barclays Capital said. Cocoa futures may be damped by a surplus.

``The overall situation of the coffee market, especially in the short term, looks bullish,'' London-based analysts including George Hopley and Paul Horsnell said in a Dec. 17 report.

Coffee for March delivery rose 9 percent last week in New York as the International Coffee Organization said global demand will outstrip supply into 2006. Prices for higher-quality Arabica beans have surged more than 60 percent in the past year on expectations a cyclical decline in Brazil's production will force processors to dig deeper into inventories.

``A price rally under normal circumstances would have prompted a load of deliveries out of Brazil,'' Barclays said. ``However, recent developments in the foreign exchange market limited the real level of the price hike benefits to be translated monetarily to producers.''

The Brazilian real has gained 6.2 percent against the U.S. dollar this year, cutting profit for growers who pay costs in local currency and sell their coffee for dollars. The real reached 2.6925 against the dollar on Dec. 3, the highest since August 2002. It traded today at 2.7120 to the dollar.

The lack of producer selling has spurred roasters to draw down inventories, Barclays said. Warehouse stockpiles tracked by the Green Coffee Association have declined 11 percent since June. Coffee, Sugar & Cocoa Exchange inventories have dropped 10 percent in the past three months.

World Output

Global coffee production will fall as low as 106 million bags in 2005-2006 from 114 million in the current crop year, the London-based International Coffee Organization said last week. Brazil's output will drop by as much as a fifth, to between 30.7 million bags and 33 million bags, the Ministry of Agriculture estimated on Dec. 10. A bag weighs 132 pounds, or 60 kilograms.

Coffee for March delivery closed at $1.0430 a pound on Dec. 17 on the New York Board of Trade, the highest since December 1999. Coffee futures touched a 30-year low of 41.5 cents in October 2001. A futures contract is an obligation to buy or sell a commodity at a set price by a specific date.

Cocoa Surplus

Cocoa reserves are heading in the opposite direction to coffee, Barclays said. The surplus for 2003-2004 was 145,000 tons, according to the Economist Intelligence Unit, up from a previous outlook of 91,000 tons. Global production, estimated at 3.3 million tons by the EIU, surpassed forecasts because of higher harvests in Ivory Coast and Ghana, Barclays said.

Ghana's output rose to 650,000 tons from 497,000 tons, Barclays said. Nigeria plans to increase production by 50 percent to 300,000 tons a year by 2010.

``This is a very comfortably placed market in terms of high stock reserves and oversupply, pointing to a rather bearish view on cocoa prices based on market fundamentals,'' Barclays said. `Most big chocolate producers have hedged prices for the next few months.''

Cocoa for March delivery closed Dec. 17 at 858 pounds ($1,663) a ton on the London International Financial Futures Exchange. Prices soared to a 13-month high of 1,021 pounds in November when Ivory Coast forces bombed rebel bases, violating a January 2003 cease-fire.

A government air strike on Nov. 6 killed nine French peacekeeping troops, prompting a retaliatory attack by France that destroyed Ivory Coast's air force and set off a wave of anti-French demonstrations. The United Nations and France evacuated more than 2,000 foreigners.

South African President Thabo Mbeki said Dec. 7 that rebels and members of Ivory Coast's government agreed to end the conflict, the British Broadcasting Corp. reported.

``If the Ivorian situation remains inflamed for a continuous period, it could lead to higher prices,'' Barclays said.

To contact the reporter on this story: Stephen Farr in London at sfarr@bloomberg.ent

Last Updated: December 20, 2004 04:10 EST