June 4, 2007

Coffee Up As Brazil Announces Subsidies COMMODITIES MARKETPLACE By Bloomberg

By Carlos Caminada

The price of coffee traded in New York rose to a three-month high at the end of last week after Brazil, the biggest producer, announced a subsidy plan that might increase domestic prices for arabica beans.

The Brazilian government said that it would pay farmers as much as 40 reals, or $21, to ensure that they get 300 reals a bag, and would hold auctions twice a month. Brazil will subsidize as many as five million bags through the end of the harvest in October.

Arabica, the mild-tasting bean preferred by coffeehouse operators like Starbucks, is traded in New York.

The plan "would effectively put a floor under the market for the potential five million bags involved," Judith Ganes-Chase, a private analyst in Katonah, New York, said in an e-mail message.

Coffee for July delivery rose 5.5 cents, or 4.9 percent, to $1.174 a pound on the New York Board of Trade, and earlier reached $1.179, the highest price for a most-active contract since March 1.

"Market participants apparently believe that holding back five million bags, if the program works, will have a positive effect on coffee prices," Helmut Ahlfeld, managing director of F.O. Licht Commodity Analysis in Ratzeburg, Germany, said in an e-mail message.

To qualify for subsidies, growers will have to offer coffee for at least 260 reals a bag. To reach that minimum, Brazil's domestic price must rise, Ahlfeld said.

The average price of arabica coffee was 231 reals late last week in the southern sector of Minas Gerais, the biggest coffee- producing state in Brazil, according to the University of Sao Paulo's agricultural-commodities research unit. That was down 20 percent from the start of the year.

Also in the region, Colombia said that it would give farmers 10,000 pesos for every 125 kilograms, or 275 pounds, of coffee if the price of the load fell below 386,000 pesos, and another 10,000 pesos a load if the price dropped to less than 376,000 pesos. Coffee now sells for about 400,000 pesos for a 125-kilogram load.

Domestic prices in Brazil and Colombia generally move in line with dollar-denominated coffee futures in New York. If the dollar depreciates or international prices fall, the value of coffee in local-currency terms usually declines as well.

Brazilian stockpiles of the beans almost doubled at the end of the first quarter after growers harvested the biggest crop in four years last season. Inventories kept by growers and trading companies rose to 17.6 million bags March 31, up from 9.72 million bags a year earlier, the Agriculture Ministry said Friday.

Coffee exports from Brazil rose less than 0.1 percent in May from a month earlier, the Coffee Exporters Council in Brazil said in a preliminary report on its Web site. Brazilian exporters shipped 1.875 million bags of green coffee beans in May, compared with 1.874 million bags in April.

In Colombia, coffee production will rise to 12.6 million bags this year, from 12 million bags in 2006, Gabriel Silva, general manager of the National Federation of Coffee Growers, said last week in Bogota.

About 70 percent of Brazilian output is of arabica beans and the other 30 percent robusta. Colombia only produces arabica.

Meanwhile, gasoline supplies last week were 6.7 percent lower than the five-year average for the period, the Energy Department said. Refineries operated at 91.1 percent of capacity, unchanged from the week before. The price rise accelerated on news that a unit at the BP refinery in Whiting, Indiana, would stay shut through summer.

"There has been a steady recovery in gasoline supplies, but it's not enough to ease concerns about the driving season," Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said. "It looks like refineries are coming back on line, which will lead to increased gasoline supplies but declines in crude."

Crude oil for July delivery rose $1.07, or 1.7 percent, to $65.08 a barrel on the New York Mercantile Exchange on Friday. Prices were 7.5 percent lower than a year ago.

Gasoline for immediate delivery traded at a 0.75 cent premium to New York Mercantile Exchange futures, up 0.5 cent. The price rose 4.64 cents, or 2.1 percent, to $2.2521 a gallon.

Conventional gasoline accounts for about 75 percent of gasoline consumed in the United States.

Colonial Pipeline, the world's largest operator of petroleum- product pipelines, said a gasoline line shut May 29 would not be operational until a segment was replaced.

"Delaying the restart of the pipeline means that gasoline can't be shipped east of Atlanta," said Jack Hunter, an energy consultant with FC Stone in Kansas City, Missouri. "Shippers are saying we have all this product and we can't ship it; it's going to flood the Gulf."

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