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Coffee on a roller-coaster

Tuesday, April 10, 2012

Commodity markets often provide a roller-coaster ride for producers, and recent events in coffee are no exception.

Only a year ago, Central American countries were celebrating the highest prices for Arábica coffee in 34 years. Since then, prices have slumped by almost 40 percent.

Crops in Central America and especially Colombia have been hit by a variety of factors, including bad weather and the nature of the crop that follows a two-year cycle -- one year of strong growth, the second weaker.

Low production should mean higher prices, not lower. But there's an elephant in the room.

Brazil, the world's largest producer, is forecast to have a near-record crop, with the result that market traders have been betting on a surplus of coffee in the market.

But Arábica prices will soon rebound, predicts Andrea Illy, whose Italy-based specialty coffee company Illycaffe sells its brand in 140 countries and has revenues of about $500 million a year.

Brazil's crop is about to enter into the second year of its two-year cycle – a positive sign for the region’s coffee producers.