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Coffee prices moved higher in late 1999 as dry weather in Brazil during the critical flowering stage for the 2000/2001 crop caused widespread damage. There was a great deal of uncertainty in the market as to what would likely happen. Following the harvest of the 1999/00 crop in September, the September-November 1999 period in Brazil was very dry. Normally, humid air moves south from the Amazon Basin meeting cooler air moving north from Argentina. The result is rain which is normally heavy, widespread and timely. These rains initiate the flowering of the trees which in turn leads to the development of the crop. This season the rains were inconsistent and light, and they often fell in only one part of the extensive coffee growing region. Early on, the rains were predominantly in the northern parts of the coffee region. The southern and central regions were dry for the most part. The light rains touched off flowering only to be followed by a dry stretch which caused the flowers to fall off the trees. It was particularly dry in the important growing region of Minas Gerais. As a result of the poor initial growing conditions, the production potential for the new crop was reduced leading to higher prices. Brazil is by far the world’s largest producer and exporter of coffee. Production in Brazil follows a biennial cycle. Large crops are followed by small crops which, in turn, are followed by large crops. Based on U.S.D.A. estimates, the 1995/96 (July-June) crop was 16.8 million bags, followed by the 1996/97 crop of 28 million bags, which was followed by the 1997/98 crop of 23.5 million bags. The 1998/99 crop was a cyclically large one at 35.6 million bags and that resulted in record coffee exports. That crop, in turn, was followed by the 1999/00 crop which was harvested between May and September 1999. That crop was 26.5 million bags. Based on the two year production cycle, the 2000/01 crop had been expected to be about 40 million bags. Because of the dry weather, the 2000/01 crop forecast was reduced to 30 million bags or less. This means that Brazilian exporters will have potentially less coffee to export in the 2000/01 season. There remains a great deal of uncertainty about the size of the crop which may not be known until the harvest. In addition to the important questions about the next Brazilian crop, there are also questions about the 1999/00 (October-September) Colombian coffee crop. Colombia is the second largest producer and exporter of coffee in the world. The U.S.D.A. in its December report forecast the crop at 12 million bags, some 10 percent larger than the previous season. That crop was damaged by a combination of heavy La Nina related rains and insect infestation. In Colombia, the National Coffee Growers Federation has reported that the 1999/00 crop could in fact turn out to be much smaller than expected, perhaps less than 10 million bags. The National Coffee Growers Federation reported that for the first three months of the 1999/00 season, production was just over 3 million bags or some 15 percent less than in 1998-99. The next largest producer of arabica coffee is Mexico. The U.S.D.A. forecast Mexico’s 1999/00 crop at 5.2 million bags, up 12 percent from the small 1998/99 crop of 4.65 million bags. Mexico is a major exporter of coffee to the U.S. and the larger crop in 1999/00 should permit a substantial increase in exports. The U.S.D.A. forecast Guatemala’s 1999/00 coffee crop at 4.9 million bags, the same as in 1998/99. It was interesting that Guatemala was a country affected in 1998 by Hurricane Mitch. In the final assessment, conditions following the hurricane were very favorable and yields were better than expected. A number of countries outside North and South American are increasing the amount of coffee they produce. The most notable of these is Vietnam which has been increasing production at a very fast rate. Vietnam has overtaken Indonesia to become the largest producer of robusta coffee. The U.S.D.A. forecast the 1999/00 crop at a record 7.5 million bags, up 12 percent from the year before. In 1994/95, Vietnam produced 3.5 million bags so output has more than doubled in the last five years. Indonesia, which had been the largest producer of robustas, has fallen behind Vietnam. The U.S.D.A. forecast the 1999/00 (April-March) crop at 7.2 million bags, up almost 4 percent from the previous year. Another country in Asia that has expanded production is India which grows both arabica and robusta coffee. The U.S.D.A. forecast the 1999/00 crop at 4.7 million bags, up 6 percent from 1998/99. In 1994/95, India’s coffee crop was 3.1 million bags. In Africa, the Ivory Coast is the largest robusta coffee producer. A military coup in late 1999 changed the government but there was no indication of any change in the coffee industry as a result of this. The U.S.D.A. estimated the 1999/00 Ivory Coast crop at 5.3 million bags, some 150 percent higher than the 1998/99 crop which was damaged by drought related to El Nino. Uganda’s 1999/00 coffee crop was forecast at 4 million bags, up 11 percent from the previous year. Overall, world coffee production in 1999/00 is forecast to be 107.2 million bags, down less than 1 percent from 1998/99. What is most interesting is how the 2000/01 crop will turn out. That crop will include the Brazilian coffee crop that has been damaged by drought. Futures Markets Coffee futures are traded on the Bolsa de Mercadorias & Futuros (BM&F), the Tokyo Grain Exchange (TGE), the Singapore Commodity Exchange (SCE), the London International Financial Futures and Options Exchange (LIFFE), and the CSCE Division of the New York Board of Trade (NYBOT). Options are traded on the BM&F, the LIFFE and the CSCE.

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Excerpted from the CRB Commodity Yearbook.