Region & Commodities: Int'l coffee prices have continued to fall

Business Daily Africa

Prices of coffee are expected to remain on the low as leading traders continued to feel the pinch of restricted credit flows triggered by the current global economic turmoil.

The International Coffee Organisation (ICO) said, like other commodities, the crop had come under the heat of the crisis sending its prices in key international markets plummeting for a third consecutive month.

A market report by the organisation said coffee prices fell further during the month of September, with its own composite indicator price settling at US cents 126.69 per pound compared to US cents 131.14 landed in August.

“The crisis in the global financial markets is having a direct effect on commodities in general, including coffee, despite the fact that the coffee supply and demand fundamentals remain unchanged,” ICO executive director, Nestor Osorio said.

He said the credit shortage caused by the financial crunch was also affecting producers, who are likely to be forced to reduce their expenditures on investment and maintenance, with a possible reduced supply in the medium term.

“Inflation levels are also going up in exporting and importing countries....The US dollar has continued to strengthen in relation to the currencies of many exporting countries while commodity prices in general are falling,” the official said.

The Kenyan coffee industry has not been spared the pinch and prices have kept on a nosedive in the last two months, prompting officials of the weekly Nairobi Coffee Exchange (NCE) to try and appease disillusioned growers.

In a rare show last week, the Kenya Coffee Planters and Traders Association (KCPTA) that runs the auction moved to explain why prices had dipped sharply following protests from growers.

It linked the woes being witnessed locally to instability in leading global markets as a result of the economic turmoil.
The ICO, however, maintained that the economic turmoil may not have a huge impact on the global production of the commodity.

“In the absence of any new information, I am maintaining my estimate of world production in crop year 2008/09 at around 131 million bags,” said Mr Osorio.

Statistics showed that exports by all producers during August reached 7.4 million bags, compared to 8.1 million bags in July while exports during the first 11 months of the coffee year 2007/08 (October 2007 –August 2008) fell by 4.5 per cent to 86.6 million bags for the same period in coffee year 2006/07.

“Credit restrictions and lack of liquidity caused by the crisis could lead to a reduction in supply,” he said.