Asian coffee trade wary of RI rains

Asian coffee trade wary of RI rains

SINGAPORE (Reuters): Late rains drenching the Indonesian coffee belt will likely trim the losses inflicted by a drought caused by the El Nino weather pattern, regional dealers said yesterday.

Steady rain continued to fall over the key coffee-growing regions of Bengkulu, Lampung and South Sumatra over the past 24 hours. The three areas account for up to 70 percent of coffee production in Indonesia.

"It looks like the (annual) monsoon season has arrived. All the areas are getting good rains. This is good as long as it lasts," a coffee dealer for a Singapore commodity house said. "It's still raining. The monsoon seems to be on the way," a European trader added.

But the coffee trade said it was too early to say how much the rains, which broke a long drought triggered by El Nino, will boost Indonesian coffee production in the 1998 season.

"It will definitely trim the losses, but as to how far it will do so is difficult to tell. The lowland farms are starting to get some rains and that will help the crop," a dealer said.

"It may help a little bit, but the damage inflicted by the drought is already there," another coffee trader said.

He said the lowland farms which have borne the brunt of the blistering dry spell "still need a lot of rain so the moisture can reach the roots of the coffee trees. Much of the soil still remains pretty dry."

Regional dealers have previously estimated Indonesia's drought-stricken coffee crop will only reach 300,000-320,000 tons next year, down sharply from a normal output of 450,000 tons.

"We'll get a better idea of the situation, maybe by next month. We need several more weeks of rain," one dealer said. Indonesia is the world's third biggest coffee producer behind Brazil and Colombia.

Its harvest consists mostly of robusta beans, a more bitter brew than the milder tasting arabica grown in Central and South America. Robustas are extensively used in the instant coffee industry.

More immediately, coffee business in the region remained steady with some trade houses engaged in covering their shorts.

"One European house still appears to be very short. They bought 2,000 tons over the past two-three days. The flow should really come out of Vietnam by the end of this month," a dealer said.

The European trading house purchased the coffee from Vietnam at around US$275 under basis the January robusta contract in London, dealers said.

"The deal was probably struck at that level," one said. Traders said the robusta market in London will probably open higher later on Wednesday following the strong close of the New York arabica market.

"I expect it to open $20-$25 higher because New York closed very strongly," a dealer said, adding the key January robusta contract should hit $1,640-$1,645 a ton after closing on Tuesday $20 down on the day at $1,625.

"New York closed pretty strong so I reckon it should be $30 higher," another dealer said.