Fortis Narrows 2010-11 Global Coffee Surplus;Demand Up

The global arabica and robusta coffee markets are expected to generate smaller surpluses than previously forecast in 2010-11 due to higher demand and slightly lower production in Brazil and Central America, Fortis Bank Nederland said Friday.

In its latest coffee report, the bank said it now expects a slightly smaller global surplus of 9.65 million 60 kilogram bags compared with its April estimate of 10.40 million bags. The arabica surplus was revised downward to 6.67 million bags and the robusta surplus was revised down to 2.98 million bags.

"As the global economic recovery has taken firmer root, we consider that a slightly faster rate of coffee consumption growth, slightly above 1%, is feasible for the 2010-2011 season."

While such a demand growth would have been disappointing in previous years, such growth is noteworthy in light of the uncertain macro-economic recovery, Fortis Bank Nederland said.

The bank revised its total coffee consumption estimate by 330,000 bags to 130.03 million bags for 2010-2011. Meanwhile global coffee output was revised to 139.7 million bags compared with its previous forecast of 140.1 million bags for the same marketing year.

The demand growth is fairly evenly spread across the European Union, India and Indonesia, the bank said. The EU economic recovery will help increase demand for coffee in that region while demand is growing in the niche markets of India and Indonesia where coffee is becoming a more established drinking habit, the bank said.

Overall, "there has been little to put fire in the belly of speculative investors in arabica futures so far this year, nor much for those tracking robusta, either," the bank said.

Brazil, the world's largest coffee producer is forecast to produce 52.28 million bags in 2010-11, nearly 11% more than the previous crop year. Better weather conditions in Colombia and other Central America countries, have improved the prospects for the upcoming arabica harvest and thereby weighed upon arabica futures' prices, the bank said.

A good robusta harvest in Vietnam, the world's largest robusta producer, and no weather disruptions in other significant robusta-producing regions have damped speculative investor interest in robusta, the bank said.

In Vietnam, the government-backed plan to stockpile some 200,000 tons of robusta coffee is now underway in theory, but in practice none of the exporters who signed up to it has yet received any funds to purchase coffee, the bank noted.

The stockpiling plan, however, may be scuppered by a potentially large Indonesian robusta crop which is due to start arriving after a brief delay due to excessive rain.

-By Alex MacDonald, Dow Jones Newswires; +44 (0)20 7842 9328;