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Coffee Futures Percolating Now, But Maybe Not For Long

October 24, 1992

Undated (AP) _ Just when the price of coffee finally is showing some signs of a caffeine jolt, a new study suggests the industry faces a vexing long-term problem: fewer people are acquiring the habit of drinking it.

Demand in North America and Europe is either weak or declining, concludes Landell Mills Commodities Studies Inc., a New York research concern.

Coffee futures prices have strengthened since the collapse of the International Coffee Organization talks in September. The group of major coffee-producing and consuming nations had been trying to reach a new agreement on quotas that would have limited the supply.

Since the failure, the December-delivery contract has risen about 16 cents on New York’s Coffee, Sugar & Cocoa Exchange to about 65.4 cents a pound. But the rise has not made up the losses traders have suffered since the beginning of the year, when December-delivery coffee traded at about 90 cents a pound.

The recent rise in coffee futures prices has been attributed to the growing perception in the market that Brazilian producers will not sell their supplies until prices are firmer. Currently, the price of coffee on Brazil’s domestic market is higher than the international price for Brazilian beans.

While there were fears Brazil’s actions could tighten coffee supplies, analysts said the shortfall caused by the country’s withdrawal from the marketplace would be made up by increased sales by other producers, such as Colombia.

However, analyst Sandra Kaul of Merrill Lynch, says the December contract may have to rise to 68 cents a pound before Brazilian producers begin selling their crop.

Analysts say the opportunity for Brazil’s producers could be limited. They say coffee futures could fall just as quickly if there is no progress at International Coffee Organization talks scheduled later this year.

Whatever the price of coffee, Landell Mills in its study says demand for coffee in the largest consuming markets, North American and Western Europe, is weak.

Average coffee consumption in the United States has stagnated over the past decade, said analyst Geoffrey Croome of Landell Mills.

Globally, Landell Mills’ study concluded that in the 1990s, coffee consumption will grow about 1 percent a year through the year 2000 to about 100 million bags. The firm estimates worldwide consumption of coffee in 1992 at 92 million bags.

″When you have consumption growing so little and the value of coffee going down so sharply, producers will have to look at ways of increasing the value of the end product,″ Croome said.

The trends in production may be one way that could be accomplished. This year, total coffee production is expected to reach 90 million bags. That is forcing producers and consuming countries to draw on huge reserves. Currently producing nations have about 49 million bags on reserve, with 20 million bags on reserve in consuming nations.

″Low prices are pushing down production,″ Croome said.

In its study of supply, demand and trade prospects, Landell Mills said producers will have to lower their production and marketing costs and improve coffee quality in order to remain competitive.

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