Olam sees global coffee prices bottoming out

Reuters - Eveline Danubrata and Naveen Thukral - Mon Nov 4, 2013 6:26am EST

SINGAPORE  - The global coffee market could find a floor around current levels as multi-year low prices prompt farmers to cut production, commodities trader and coffee supplier Olam International Ltd (OLAM.SI) said on Monday.

London robustas slid to their lowest since June 2010 on Friday, largely driven by prospects of a record crop in Vietnam, while December arabica futures on ICE Futures U.S. dropped to the lowest in more than four years last week.

"It does not make sense for farmers to fertilize at the same level or (carry out) weeding at the same level, so they will reduce the inputs," Olam Chief Executive Officer Sunny Verghese said in an interview at the Reuters Global Commodities Summit.

"There might be a little bit more downside to coffee prices, but we see that we are reaching the bottom."

The International Coffee Organization has raised its global coffee production estimate to 145.2 million 60-kg bags in the 2012/13 crop year, up 0.5 percent from its previous estimate, as output soared in Brazil and Colombia.

The new forecast for 2012/13, which ended September 30, is up 9.6 percent from 2011/12 and the highest on publicly available records that date back to the 1990/1991 crop year.

Robusta production jumped by 11.6 percent to an estimated 56.4 million bags in 2012/13, with arabica production rising by 8.4 percent to 88.8 million bags, the ICO said in a monthly report.

Olam, which produces and trades several agricultural products, is among the top global suppliers of coffee and cotton.

Bearish fundamentals in the cotton market are likely to put pressure on prices although stockpiling and imports by China, the world's top buyer, could provide some support, Verghese said.

The spot month cotton contract on Friday hit a low of 76.54 cents a lb, its weakest since January.

"We believe it will trade in the range between 70 and 75 cents, so there is a downside to 70 cents. If the Chinese government policy continues the way it is, they will trade around 75-80 cents."

China almost doubled the purchase of domestic cotton for state reserves in the latest week to 608,560 metric tons, boosting its buying after a sluggish start to this year's stockpiling program, official data showed.

The International Cotton Advisory Committee on Friday raised its forecast for global inventories on an improving outlook for this season's crops and higher output in major producers.

SLOWER GROWTH PATH

Olam, a key player in global cocoa trade, is keen to expand its manufacturing and grinding business, Verghese said.

"We don't want to be a major processor, but we will want to be a meaningful processor," he said. "We will do a mix of organic and inorganic investments in the processing side."

Olam shifted to a slower growth path in April, saying it will nearly halve its capital spending over the next three years and trim its businesses, after criticism from short-seller Muddy Waters last November sent the company's stock and bond prices plunging.

Singapore state investor Temasek Holdings TEM.UL raised its stake in Olam from around 16 percent before the Muddy Waters allegations to 24 percent.

Verghese said Olam is on track to be free-cashflow positive in the year to June 2014, one year earlier than previously forecast. He added that the company's debt-to-equity ratio is below two times and the company can maintain this level.

"We regularly are in contact with our investors, they are very pleased with the recalibrated stand and they are waiting to see how we execute," he said.

"But they have to be patient and we have to guide them to be patient because none of the measures that we are taking are short fixes, they will take time to execute."

Uncertainties put Wayanad coffee farmers in a fix

The HIndu  -  November 4, 2013 02:35 IST 

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With only a few weeks left for coffee harvest, the uncertainties prevailing in the coffee industry have cast a shadow on thousands of farmers in the State.

A sharp decline in the price of the produce, climatic vagaries, increasing input costs, dearth of workers, lack of support from the government and Coffee Board, and skyrocketing price of fertilizers are the major concerns of the farmers.

The spot price for a kg of Robusta coffee beans in Wayanad market on Saturday was Rs.96 a kg as against the Rs.147 a kg during the corresponding period last year, K. Salu, a coffee dealer and secretary of the Kerala Coffee Processors and Dealers Association, said.

The fall in price was on par with international markets, but it was not fully reflected in Indian market owing to the fall in rupee, he said. A bumper coffee production this year in major coffee producing countries such as Brazil and Vietnam was another reason for the price fall, he said.

Coffee harvesting in Brazil had almost been completed and harvesting in Vietnam had just begun, he said. The price of coffee beans had touched Rs.153 a kg in October last year, Mr. Salu said.

Traders expect a production of 40,000 tonnes of Robusta coffee from the district this year as against the 44, 000 tonnes last year. Trading sources are expecting a 20 per cent fall in production this season owing to the heavy rain during blossom.

According to the data of the Coffee Board, cultivation is spread over 84,931 hectares in the State, including 67,366 hectares in Wayanad district, 12,915 hectares in the southern districts, and 4,650 hectares in Nelliampathy in Palakkad district.

The total production of coffee in the country in 2012-13 fiscal was 3,15,500 tonnes, including 1,00,225 tonnes of Arabica and 2, 15,275 tonnes of Robusta. In Robusta production, 30 per cent was grown in Kerala. The average coffee production in the State was 65,000 metric tonnes annually of which a major share, nearly 55,000 metric tonnes, came from Wayanad district alone, the data said.

Coffee cultivation was not a lucrative business now, as various factors were adversely affecting the industry, Prasanth Rajesh, president, Wayanad Coffee Growers Association, said. The coffee sector in the State was facing acute crisis owing to the alleged negligence from the part of the government and Coffee Board, he said.

The blossom shower and back up showers were the major factors determining the production. As many of the farmers were holding below one hectare, modern irrigation systems such as drip and sprinkler irrigation was far away from their reach and a small change in climate would adversely affect their family budget.

Though the Coffee Board had implemented a Coffee Rainfall Insurance, a scheme to help growers in risk management during excessive or scanty rainfall, most of the farmers kept away from it as the payout from the scheme was far below the actual crop loss, Mr. Rajesh said.

Robusta Edges Higher But Stays Near Lows On Harvest Pressure

DJones -  Neena Rai

  Robusta coffee futures edged higher in early European trading Monday, but

within sight of the market's recent more than three-year low hit last week, as

harvest pressure from top grower Vietnam pushed the market lower.

  At 1110 GMT, January robusta coffee futures traded 0.5% higher at $1,496 a

metric ton. Last week, the market hit its lowest level of $1,453/ton--the

lowest since June 10, 2010.

  Meanwhile, Liffe cocoa futures for March delivery fell 0.4% to 1,695 pounds

($2,698.49) a ton as harvest pressure from West Africa pressured prices lower.

  "Cocoa futures closed lower for the [last] week as improving prospects of

cocoa crops in Ivory Coast, top grower of cocoa, due to favourable weather

conditions helped to outweigh concerns regarding optimistic demand and

continued global deficit of cocoa," said Phillip Futures.

  "If there is no major change in the weather in Ivory Coast and weather

conditions continue to be favourable, we may continue to see further downside

to cocoa prices," added the brokerage.

  The market hit a two-year high of GBP1,774 a ton on Oct. 15 as

stronger-than-expected demand for the chocolate-making ingredient and concerns

of a supply deficit supported the market.

  European Union wheat futures for November delivery fell 0.2% to 207.25 euros

($279.49) a ton, extending losses from the prior session's close.

  "Mounting summer crop harvest progress in the U.S. (and better than expected

yields), combined with much needed rainfall in Argentina, reduced Indian wheat

export prices and slowing U.S. wheat disposals weighed on grain and oilseed

prices over the week," Luke Mathews analyst at Commonwealth Bank of Australia

said. Dealers said the U.S. Department of Agriculture November WASDE report

this Friday will give further price direction.

  December sugar futures were broadly steady and edged higher 0.3% to $482.70 a

ton.