Drooping Arabica Coffee Prices Could Take Toll On Next Crop

Drooping Arabica Coffee Prices Could Take Toll On Next Crop
Leslie Josephs
DOW JONES
     --Coffee prices down almost 40% from last year's high 
  --Lower prices seen cutting into farmers' income    --
Fewer investments likely in coffee plants      CHARLESTON, S.C. - Expectations of a robust harvest from topgrower Brazil have sent arabica coffee prices tumbling, which in turn could capproduction next year.   Farmers from the Andes to Central America say they are earning less, whichmeans they will have less to invest in the high-maintenance arabica plants thatproduce some of the world's most coveted beans.   "The level of investment on the farms is going to be greatly reduced," saidLuis Gonzaga Ordonez, manager of the Association of High-Quality CoffeeProducers, a group representing 250 growers who harvest coffee from the slopesof the southwestern Huila region of Colombia. "First it's going to affectquality, then it will affect quantity."   Gonzaga Ordonez, who harvests coffee from his 2.5-hectare farm outside of thetown of La Plata, expects production to drop 30% as farmers scale back oninvesting in their plants and take others out of production altogether sincecosts haven't declined with the price.   Front-month arabica futures traded on the ICE Futures U.S. exchange are downalmost 40% from last year's high of $3.049 a pound. Most of the recent declinehas been in anticipation of Brazil's upcoming harvest, which the InternationalCoffee Organization forecasts would produce a record 50.6 million 60-kilogrambags.   The drop in prices is eating into income for coffee farmers, particularly inregions that are expensive to produce, such as Costa Rica, where labor andtransportation costs are high. Some farmers are taking drastic measures.   "I'm going to reforest," said Gerardo Suarez, head of production at SuarezCoffee Growers in Costa Rica's central highlands. Suarez said he is going toleave only half of his 15-hectare farm for coffee because he could make moremoney by selling timber.   The farmers' moves would drive down production and eventually lead to highercoffee prices.   "Anytime you have reduced production, you're likely to have higher prices,"said Jack Scoville, a vice president at Price Futures Group in Chicago. "We'reprobably going to rebound to $2.40-$2.50 for 2013."   Societe Generale predicts the rebound could come even sooner.   "We expect prices to continue trending lower into the Brazilian harvest,before reversing higher into year-end as supplies begin tightening again,assuming demand remains strong," said analyst Michael Haigh.   The bank said this week that prices could average $2.0587 a pound this year.Arabica for May delivery settled 1.1 cents, or 0.6%, higher at $1.8470 a poundWednesday.