Brazil Coffee to Hold at 5-Year High as Demand Outpaces Supply, Cepea Says

Arabica coffee prices in Brazil, the world’s biggest grower of the commodity, will stay near a five- year high as rising demand outpaces supply, according to a research group.

Growers will sell coffee harvested from April to September for 300 reais to 310 reais ($170 to $176) a bag, said Fernanda Geraldini, an analyst at the University of Sao Paulo’s Cepea research unit. Coffee in Minas Gerais state, the biggest producer in Brazil, rose to 313.07 reais on June 24, the highest since March 2005, according to Cepea data.

Rising global demand will top output this year and be enough to absorb the increase in supplies as a bumper Brazilian crop hits the market, Geraldini said. Coffee futures in New York fell the most in a week yesterday on concern that the bigger Brazilian harvest would spur sales.

“The supply of good quality coffee is very small, so prices will stay high even after bigger volumes enter the market in August,” Geraldini said yesterday in a telephone interview from Piracicaba, Brazil.

Brazilian output is forecast to increase 23 percent to a record 55.3 million bags this year as crops enter the more- productive phase of a biennial cycle, the U.S. Department of Agriculture said June 18.

Arabica Competition

Price increases “won’t last long” as other countries, such as Vietnam, will start growing Arabica to seek a profit, Deputy Agriculture Minister Gerardo Fontelles said today in an interview in Brasilia. He declined to say when prices may drop.

Brazil postponed plans to buy 5 million coffee bags this year after prices rose, Fontelles said on July 6. Growers are pushing the government to boost purchases to help bolster the price as they struggle with about 4 billion reais in debt, according to the agriculture confederation.

Last year, Brazil offered to buy 3 million bags in options contracts.

Growers have to produce beans in Brazil for a maximum of 260 reais a bag to make a profit, Fontelles said.

One bag weighs 60 kilograms, or 132 pounds.

Arabica coffee for September delivery rose 3.75 cents, or 2.3 percent, to $1.675 a pound on ICE Futures U.S. at 1:42 p.m. in New York, after dropping yesterday the most since July 20. The commodity has declined 5.3 percent since reaching a 12-year high of $1.765 on June 24.

To contact the reporter on this story: Katia Cortes in Brasilia at at kcortes@bloomberg.net

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