prices presented a mixed performance in February, with Arabicas slipping and Robustas increasing by a similar amount. This resulted in a sharp narrowing of the differential between the two. The ICO composite indicator fell to 182.29 US cents/lb compared to 188.90 in January, a drop of 3.5%, and has now fallen every month since the start of the year. This monthly average is also 15.6% lower than February 2011 and 13.4% lower than the annual average of 2011. Indeed, the prices of all four groups of are lower than they were 12 months ago. This downward correction was particularly marked in the case of Arabica, with the New York futures market at its lowest level since November 2010.

The value of the US dollar depreciated in relation to the currencies of a number of exporting countries during February 2012, notably the Brazilian real, the Colombian peso, the Indian rupee, the Indonesian rupiah, and the Vietnamese dong, accentuating the impact of downward price corrections.

In terms of market fundamentals, a record crop of 50.6 million bags is forecast in Brazil for crop year 2012/13, which will begin harvesting shortly. However, adverse weather conditions have continued to limit the supply of Washed Arabicas, particularly in Central America and Colombia. Given the strength of domestic consumption in Brazil, high levels of production in crop year 2012/13 will have a limited negative impact on prices. Indeed, the outlook for world consumption, on the other hand, is bright. Demand in traditional importing countries has remained resilient to the global economic downturn, and consumption in exporting countries and emerging markets has proved dynamic with strong potential for further growth. Moreover, stocks in exporting countries need to be replenished since they are at their lowest levels on record.

Exports by all exporting countries during January 2012 totalled 8.0 million bags, bringing the cumulative total for coffee year 2011/12 (October 2011 to January 2012) to 32.6 million bags as against million bags for the same period in coffee year 2010/11, a decrease of 3%.

Graph 1: ICO composite indicator prices Daily: 1 February 2011 - 29 February 2012

Price movements

The monthly average of the ICO composite indicator fell by a further 3.5% in February 2012, from 188.90 US cents/lb in January to 182.29, its lowest level in 15 months (Table 1). This decline was driven by the negative performance of the three Arabica groups, all of which lost value compared to their January levels. More specifically, Colombian Milds fell by 4.6%, Other Milds by 5.5%, and Brazilian Naturals by 5.6%. Robustas, on the other hand, recorded strong growth of 5.4% compared to January. Graphs 1 and 2 show ICO daily composite and group indicator prices since 1 February 2011. As a result of these developments, differentials between the three Arabica groups and Robusta narrowed significantly, with the arbitrage between the New York and London futures markets dropping by 13.9%.

Graph 2: Group indicator prices Daily: 1 February 2011 - 29 February 2012

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