COFFEE FUTURES

World coffee statistics are notoriously hard to rely on, but on December 2, 2005, the USDA increased its estimate of world 2005-2006 ending coffee stocks from 14.9 to 20.3 million (60-kg) bags, or 17% of total use, still the lowest in over two decades. World production was estimated at 113.2 million bags with 116.6 million bags of implied total use. Typically, the low ending stocks estimate would mean higher prices, but the market is concerned about Brazil harvesting a larger crop in 2006.

For 2006-2007, the International Coffee Organization predicted on December 13, 2005, that world production will total 120 million (60 kg) bags, more than the 118 million bags of estimated consumption. On December 7, 2005, Safras & Mercados estimated Brazil's 2006-2007 coffee crop at 47.8 million bags. On December 9th, the Brazilian government estimated the same crop at 42.0 million bags.

Make no mistake, coffee producers have been experiencing financial pain. Coffee prices fell for almost seven years and were close to three-decade lows in late-2001. The 45 members of the International Coffee Organization have agreed to restrain production, but those kinds of plans rarely work. Brazil subsidizes their coffee growers which helps to prevent panic selling, but also encourages them to over-produce.

"New Orleans storage problems are in the market, and the focus now is on Brazil's 2006 crop," the trader said. "There are no soil-moisture problems in Brazil now after rain last week, but it will be drier this week. It's too early to comment on Brazil's flowering, and we'll know more in 30 days. The market's wondering whether the crop will be over 50 million bags or under 45 million."

Dow Jones Newswires. October 3, 2005.