NEW YORK, July 28, 2011 /PRNewswire/ -- A new report by Rabobank's Food & Agribusiness Research and Advisory (FAR) department examines the impact of recent coffee price increases on Brazil's coffee supply.

Highlights of the report, released today, include:

• Current trends in improving productivity; the historical relationship between prices and harvested area indicate that the recent rise in Brazilian coffee prices could cause a 27 percent increase in the supply of coffee in Brazil in the 2014/15 crop year
• Increased supply from Brazil, combined with a projected production increase from Colombia, could produce considerable excess in the world coffee supply, impacting prices and profitability in the sector
• Growers and suppliers should seize this opportunity to address structural difficulties in the industry and shield themselves from a possible downturn in the future

Furthermore, the report details:

Supply, productivity and prices, based on recent history

Brazilian coffee planting underwent a period of financial tightening due to the gap between the rising costs of production and the falling prices received by producers. To remain competitive, coffee producers sought productivity improvements to reduce the cost per bag produced. These efforts led to higher yields from lower hectares, and increases in both international and domestic coffee prices.

Structural issues

In spite of the 'gold rush' scenario for coffee planting in 2011, Brazil's major structural issues persist, including: property management, the use of different instruments to trade coffee, investing in quality and certification of sustainability, and intensive use of manual labor versus mechanization.

Relation between coffee prices and supply

Recent increases in the price of coffee may have a significant impact on supply in the next few years. If this increase should fail to be accompanied by a proportional increase in total demand for the product, prices will likely fall once again, putting pressure on margins in the sector.

Growth scenarios

Based on the extrapolation of recent trends, there are several potential scenarios regarding the 2011/12 crop year. Assuming worldwide consumption continues to grow at a consistent rate, global demand could reach 145.7 million bags by 2013/14; this suggests a probable gap between the supply and demand of coffee.

Conclusion

After a few years of challenging profitability, coffee growers in Brazil have benefitted from the recent jump in international coffee prices. However, the current positive environment for coffee planting in Brazil may not last. In the face of this possibility, Brazilian growers should address structural difficulties that have previously threatened their competitiveness and seek protection against probable pressures on profitability in the future.

Rabobank is a global financial services leader providing wholesale and retail banking for the food and agricultural industry, asset and investment management, leasing, real estate services, and renewable energy project financing. Founded over a century ago, Rabobank today is one of the largest banks in the world, with more than $850 billion in assets and operations in over 45 countries. Rabobank is the only private bank with a triple A credit rating from both Standard & Poor's and Moody's, and is ranked among the world's safest banks by Global Finance magazine. In North America, Rabobank is a leading financial services provider to the corporate food and agribusiness industry. www.Rabobank.com

SOURCE Rabobank

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