Gallins Foods

Update On Coffee Prices

We promised to keep you updated on coffee futures and pricing, so here is the latest information we have received.

The full report (released May 13) is below, but here is a basic summary:

- Concern over the worldwide economy, the strengthening of the dollar, and Brazil's auctioning of some of it's 2009 stock have caused prices to drop to their lowest point in the last five weeks.

- Prices have fallen nearly 40 cents per pound since reaching their highest point ($3.0890) on May 3.

- While the trend is currently down, few people are expecting prices to return to historical levels.

FULL REPORT FROM "COFFEE PERSPECTIVE" - MAY 13, 2011

Prices slid further this week as commodities remained under pressure due to continued concerns relating to the economic situation worldwide and the strengthening of the dollar.  Prices on the ICE were down each day of the week except Thursday.  On several days, prices were up in early trading only to fall as buying interest dissipated.  The upcoming harvest of the Brazil crop, now underway with a record off-cycle crop expected, also weighed on prices.  The announcement that Brazil would auction off 1.55 million bags of the 2009 harvest stocks the government is holding also contributed to the current negative sentiment.  Coffee breached key support levels and the liquidation continued for the entire week, with prices hitting five-week lows.  For the week, ICE prices fell about eighteen cents per pound.  London robusta prices fell $63 - $71 per metric ton in the first two positions.

Futures Prices for the Week were as follows:

Fundamental Analysis and News:

- Indonesia is experiencing heavy rains which could impact the upcoming crop.  Exporters there were reported to have cancelled shipments of 3,000 tons of robusta coffee for April and May delivery due to problems getting supply after an erratic harvest.  Yields are down, making coffee for nearby shipment very tight.

- Brazil announced it would begin auctioning off 1.55 million bags of 2009 harvest stocks held by the government in 50,000 bags increments in the coming weeks.

- Costa Rica said this week that the harvest there is complete and production was 1.61 million bags, up 8% from last year.  The estimate for next year’s crop was set at 1.65 million bags.

- Brazil's CONAB on Tuesday released its estimate for the upcoming 2011/12 crop at 43.5 million bags, with a range of 41.9 million – 44.7 million bags.  This output would be down from last season’s 48.1 million bags but up from the last off-cycle harvest in 2009/10 of 39.5 million bags.

- Heavy rains in Sumatra may damage the cherries and threaten the upcoming harvest there, reducing output.

- The U.S, attaché in Brazil released its estimate for the 2011/12 Brazil crop of 49.2 million bags, much higher than the official government estimate.

- Certified stocks as of Friday, May 13, 2011 were 1,635,105 bags, up about 17,000 bags from last Friday.  There were 34,937 bags pending grading.

- The Commitment of Traders Report (futures only) as of Tuesday, May 10 was released after the close of trading on Friday.  Funds were net long 28,463 contracts, down from 33,633 contracts last week.  Specs were net long 2,895 contracts, down from 4,538 contracts the prior week.  Commercial accounts were net short 31,658 contracts, down from 38,171 contracts the prior week.  Open interest was 115,685 contracts, down from 120,301 contracts the prior week.

Outlook:

 The liquidation has been severe, with open interest hitting the lowest level since December of 2009.  We have fallen nearly 40 cents per pound since the high of $3.0890 was reached on May 3, a huge decline in 10 days.  Risk management has taken a higher profile and concerns over the economy worldwide, especially in China, have driven the funds away for the time being.  As some have said, maybe the bullish momentum has grown tired.  So the trend is currently down, a much needed respite from the bullish market that caused prices to more than double since last June.  We would hope it would continue and get prices back in a more reasonable range, and maybe it will.  But few are predicting a fall to historical prices levels, and the funds have plenty of money to throw back in on a moment’s notice, so caution is urged.

Brazil Crop Estimates Summary:

Estimates of prior and upcoming Brazil crops are as follows – this information will be updated as new information is available:

 2006-2007 Crop

Estimate from CONAB in April, 2007 and December, 2007                       42.5 million bags

Estimate from most other private sources                                              45 – 48 million bags

 2007-2008 Crop

CONAB estimate released the week of December 12, 2008                      36 million bags

Estimates from most other private sources                                             35 – 38 million bags

 2008-2009 Crop

CONAB’s fourth estimate released the week of December 12, 2008         46 million bags

Estimates from most other private sources                                             47 million bags to over 52 million bags

 2009-2010 Crop

CONAB estimate the week of May 7, 2010                                              39.47 million bags

Estimates from most other private sources                                             38 – 43 million bags

2010-2011 Crop

ICO estimate the week of May 14, 2010                                                  47 – 50 million bags

Census Bureau estimate the week of June 11, 2010                                 45.8 million bags

USDA estimate in their report released the week of June 18, 2010            55.3 million bags

Safras & Mercado estimate the week of June 25. 2010                            54.6 million bags

Census Bureau estimate the week of August 6, 2010                               45.8 million bags

Estimates from most other private sources                                             50 – 55 million bags

F.O. Licht estimate the week of November 12, 2010                                55 million bags

F.O. Licht estimate the week of December 10, 2010                                54.7 million bags

Many estimates are above the 55 million bag level

 2011-12 Crop

F.O. Licht estimate the week of November 12, 2010                                46 - 47 million bags

CONAB estimate the week of January 7, 2010                                         41.9 – 44.7 million bags

Comexim estimate the week of February 18, 2011                                   47.5 million bags.

CONAB estimate the week of May 13, 2011                                            43.5 million bags

U.S. attaché estimate the week of May 13, 2011                                     49.2 million bags