Coffee prices are set to remain high as farmers' increased maintenance and fertiliser use will not boost production enough to match growing demand.
Arabica coffee prices hit a 34-year high in May on tight supplies of high quality beans, but as coffee trees take around three years to produce crop, output is not keeping pace with demand. "Long term, coffee is still going to be a bull market. Demand will outpace supply in the long-term for coffee," said Nick Gentile, head of trading of commodity fund Atlantic Capital Advisors in Jersey City, New Jersey.
The International Coffee Organisation estimates that global coffee consumption rose 2.4 per cent to a record 134.0 million 60kg bags in 2010, while world 2010-11 coffee output is forecast at 133 million 60kg bags. Increasing production will take time, the ICO said. "When you invest today it will take you a three year minimum to get an output from the investment," the International Coffee Organisation's chief economist Denis Seudieu said.
"Based on this hypothesis the relatively high prices will need to be maintained for another two years because the supply response takes time."
In the near term farmers are to increase fertiliser application and maintenance of their existing crops, to maximise output.
"High coffee prices are undoubtedly an incentive to renovate and make plantations more productive," Luis Genaro Munoz, head of Colombia's coffee federation said, adding sales in fertiliser continued to rise.