The coffee market continued to grind lower with both London and New York dropping to contract lows on the absence of frost in Brazil and the quickening of the harvesting process. The ICO composite indicator price dropped from 60.29 to 55.36 cents/lb, while Colombian mild arabicas (daily weighted average) gave up 2.67 cents to settle at 73.94 cents. Other mild arabicas dropped from 77.45 to 71.66 cents. Brazilian natural arabicas closed 5.57 cents lower at 59.30 cents. Robusta prices fell sharply from 37.01 to 33.14 cents, mainly because of heavy Vietnamese shipments so far this year.

Coffee prices from May to June had been supported by a delay in the harvest of the Brazilian 2004/05 crop due to frequent rains and by doubts over the quality of this season's coffee. However, the improvement in the Brazilian weather has allowed coffee farmers to speed up harvesting with 68% harvested by August 2nd. Nevertheless, the harvest is still behind schedule and will continue into the second half of September, posing a risk of harvesting spoiling flowering of the 2005/06 crop, which starts in September, local analyst Safras & Mercado said. Moreover, there is still considerable concern about the availability of container space. Traders said about 4,00,000 60-kg bags of coffee are currently stuck in the main port of Santos, which led US roasters to step up demand, a move to secure supplies and causing coffee premiums to inch up.

Despite the harvesting problems, Brazil exporters 1.66 mln 60-kg bags of coffee in July 2004, up 7.1% from the 1.55 mln shipped the same month last year. Traders said that exporters would have been even higher were it not for declining robusta exports as higher domestic prices were more attractive than global ones, combined with the shortage of shipping containers.

Seasonally, Brazilian exporters should be strongest in the next few months but the delayed crop could still cause some slowdown, especially if Brazilian producers refrain from selling in anticipation of higher prices later in the year.

Another question concerns the potential size of the 2005/06 crop which is supposed to be an "off" year in the production cycle. According to J. Ganes Consulting LLC, there are those that continue to insist that the rare occurrence might happen of having two consecutive "on years" because of the heavy rainfall in January that spurred an improvement in the trees' general appearance and new growth of branches and leaves, followed by abundant rainfall in June to further boost soil moisture reserves and nutrients to the trees; However, the strong counter argument to this is that irregular patterns of rainfall are not healthy for the tree, especially if it spurs premature flowering, Ganes said. It was added that there never has been an on-year of Brazilian production followed immediately by a second year of sharply higher output.

Meanwhile, Brazil's cash coffee market has virtually come to a standstill because of little buying interest in Europe due to the summer holidays, a lack of shipping containers at Santos port and producers being reluctant to sell at current low prices.

Exporting members of the International Coffee Organization (ICO) shipped a record 8.931 mln 60-kg bags of coffee in June 2004, up from 7.702 mln exported the same month in 2003. This season there have been two months
when exports surpassed 8 mln bags, owing to heavy shipments from both Brazil and Vietnam. In 2002/03 and 2001/02 exports never exceeded this amount. Despite the sharp rise in the exports in June this year, the total shipped in October/June 2003/04 was, at 66.611 mln bags, still 0.73% less than was exported the same period last year.

Vietnam exported heavily in 2003/04. According to Vietnam's General Statistics Office, the country exported 832,000 tonnes of coffee in October/ July 2003/04, sharply up from the previous year's figure of 585,000 tonnes. Traders said that given the exported volume, Vietnam would still have around 200,000 tonnes of beans left in the country before harvesting of the 2004/05 crop begins. According to trade sources, the 2003/04 crop can be estimated at around 14 mln bags and is likely to rise further are to 15.8 m/g into 2004/05. These figures significantly above the estimates released by the Vietnam Coffee and Cocoa Association (Vicofa).

Another problem plaguing the market is the never ending flow of coffee being certified against the New York Board of Trade, traders said that there are signs that certified stocks are being sifted through despite the large amount of coffee that still waits grading, currently totalling 15841,000 bags.

The further development of world market prices will be heavily influenced by the Brazilian 2004/05 crop. The next official estimate will be released on August 12 and it would be surprising if the Government figure is more than 36 mln bags. If this crop should be really that low, there would be a good chance of yet another deficit in 2004/05.