Coffee prices head for a roller coaster ride

The prices of coffee enjoyed the biggest rally in five years, but the day of reckoning would come soon, its prices would plummet and coffee speculators knew that it would be like trying to catch a falling knife.

Presently, the speculators who bought coffee from the world's soft commodity markets and who had "long" their purchases, or bet that its price would crawl upwards, had been hastily offloading their holdings.

They had turned bearish on this soft commodity because they predicted a bountiful harvest of coffee in the months to come.

Supply of the popular arabica type of coffee would exceed demand by September 2011 and the supply by then would be more than six times this season's surplus.

Rise in coffee prices coincided with the sharp rally in wheat prices, sparked by the drought in Russia and Europe. Another major wheat producer, Canada, suffered from floods in its huge wheat growing belt.

The price of arabica surged 50 per cent since 7 June in New York to reach a 13-year high of USD 1.98 per pound on 8 September.

According to a poll, made up of analysts, the price would dive down to USD1.52 or 20 per cent in the fourth quarter of 2010.

However, the supply of coffee was now tight, making speculators nervous. Coffee stockpile in warehouses were only 35 per cent full, lowest in a decade. Coffee addicts who bought their processed coffee powder from retail shops would not be prepared to pay the higher prices, as they said that it was a dispensable food item.

Since the robusta coffee, also grown by many coffee growers in Parksong, southern Laos, commanded a lower market price in the world, coffee bar operators and coffee powder packagers would mix it with arabica coffee and sell the mixture at a lower price.

However, Vietnamese robusta, fetched USD 1.83 per pound, a 21-month high in NYSE Liffe in London, nevertheless, lower than arabica.

The Lao coffee growers body had applied for membership status of the international coffee association and until it was a full-fledged member, Lao coffee could not be traded in the soft commodity markets of the world.

Nevertheless, they too enjoyed good sale prices because of the recent run up in coffee prices in the world and while they were on a roll they should be mindful of the fact that it would not last long and be prepared for the coming skid in prices.

KPL Lao News Agency