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Indonesia coffee supply tight despite higher price

12 May 2005, SINGAPORE - Supply disruption caused by a series of natural calamities in recent months and labor shortages that followed have driven Indonesian coffee prices significantly higher, but production hasn't kept pace with rising demand. The situation has been made worse by farmers hoarding coffee in the hope that prices would rise further, market participants said.

"There is a lot of coffee but we're not seeing huge volumes reaching the market yet," said a Singapore-based trader. Prices had risen so much that many exporters weren't able to fulfill earlier contracts as they didn't have the stocks, he said. "Farmers started withholding stocks, expecting prices to go up some more, (suppliers) defaulted and foreign buyers had to buy directly from the open market," he said.

He said many exporters are still stuck with earlier commitments that they are unable fulfill. Some of them tried to make fresh purchases which in turn raised prices further and increased competition to secure beans. Indonesian robusta EK1 grade 4 with 80 defects was offered $990-$1,000 a metric ton Thursday, free-on-board Lampung, compared with $950-$960/ton a week earlier.

Around the same time last year, Indonesian robusta coffee prices averaged $850/ton, up from $650/ton in 2003. Mandheling grade 3 arabica coffee was offered Thursday around $3,800-$4,000/ton, compared with $1,900-$2,000/ton during the same period last year.