Surveys
Arabica Coffee Price Likely To Remain Low Despite "Rust Fungus" - ETF Securities

The price of arabica coffee is likely to remain low, despite the risk of a potent "rust fungus" affecting supply, according to a report by ETF Securities at a time when such exchange traded fund firms have been providing investors more ways to tap into commodity markets.
The fungus, which attacks the leaves of arabica bushes and reduces the coffee yield, is currently ravaging coffee bushes in Central America, threatening to reduce global supplies and push up prices.
The comments come at a time when agricultural commodities, along with other "alternative" investments, have been a more visible feature of client portfolios from investors seeking "real" assets to diversify away from areas such as mainstream equities and bonds, amid fears about the effects of central bank money printing, among other factors.
Despite this, the firm said that a bumper crop from Brazil this year is likely to keep prices down. So far this year there have not been any major reports of the blight in Brazil, therefore supply should remain plentiful, the firm said. ETF said current low coffee prices can be attributed to an oversupply from Brazil, which dominates arabica production.
Between 2003 and 2011, arabica coffee rose nearly five times in price, before then halving to $1.40/lb today.
Unlike other agricultural commodities, coffee bushes continue to produce beans for several years, so an increase in plantation will raise supply for a long time. The market is therefore suffering a supply glut after farmers over-planted in response to the 2010-2011 price hike, the research said.
After a record harvest of 50.8 million bags last year, the Brazilian government expects between 47 million and 50.2 million bags to be produced this year.
"The Brazilian government is also likely to intervene if prices fall significantly and speculative futures positioning is already substantially negative, providing a medium-term price floor. Even if Brazil decides to hold back supply, the current production rate is likely to cap price gains," said Nitesh Shah, associate director of research at ETF Securities.