* Coffee price not high enough to sell export grade stocks
    * Prices to stay higher with no boost in supply
    * Gov't steers clear of incentives to raise coffee output
   
 (Adds analyst quote, pressure on roasters, background)
    By Peter Murphy
    BRASILIA, Feb 18 (Reuters) - Brazil, the world's biggest
coffee producer, is holding back its big bean stocks and hoping
for improved market conditions in a wager that world prices --
the highest in 14 years -- will keep on rising, its top coffee
official said on Friday. 
 

        In comments that could lend fresh support to a rally that
has doubled prices since last summer, Roberio Oliveira Silva,
director for coffee at Brazil's agriculture ministry, told
Reuters the country will watch and wait before selling beans it
amassed a year ago in an effort to boost prices.
    That threatens to prolong the strain on a tight global
market, forcing consumers to reach deeper into their pockets as
roasters like Kraft Foods <KFT.N> and coffee chains like
Starbucks <SBUX.O> start to pass on higher costs.
    "(We will sell) when the market is presenting the ideal
conditions. Depending on how the market evolves we will
decide," said Silva, Brazil's candidate to be the next
executive director of the International Coffee Organization
(ICO).
    "We will get a feel for the market and work out what to
do," he said. He later made clear that prices had not yet risen
sufficiently for the government to sell these stocks. 
     
    BIG STOCKS IN STORE
    Brazil, which supplies about a quarter of the world's
coffee, has 1.2 million-1.5 million bags of exportable 2009
arabica in storage, stocks it bought up in early 2010 at around
300 reais ($180) per bag to prop up prices when coffee futures
were trading at half what they are today.
    While that warehoused coffee equates to just about 3
percent of what Brazil shipped last year, the injection of
those supplies would bring some relief to a tightly supplied
market that may face a deficit in the 2011/12 crop year.
    "People were probably looking for something to kind of ease
things up a little but clearly it's not coming out of Brazil,"
said Jack Scoville, analyst with the Price Futures Group in
Chicago. "I can't imagine why they're not interested in selling
it now, it's not like these are bad prices."
    Similar grades now fetch upwards of 500 reais in Brazil,
implying the government would turn a profit in the region of
$240 million if it were to sell them now at this rate.
    New York May arabica coffee futures <KCc2> rose 1.5 percent
on Friday to $2.73 per lb, their highest since 1997 and up from
around $1 a lb just two years ago.
 
    ROUGH RIDE FOR ROASTERS
    CoffeeNetwork, a coffee information company, last week
estimated global output in the 2011/12 international crop year
at around 131 million 60-kg bags. That would fall short of
expected demand for 135 million bags. 
    More than a dozen traders, analysts and producers
interviewed by Reuters in January predicted, on average, a
tight but close to even supply-and-demand balance. 
    Silva also dismissed the idea of providing government
incentives for growers to increase output. Such a move, he
said, could foment a whiplash collapse in prices, backfiring on
growers and constraining further growth.
    "We won't entice anyone to take decisions that could
require a bailout later," Silva said. He said it was down to
the individual farmer to decide whether and by how much to
expand his production.
    The government announced this week it would begin selling
off other stocks totaling around 100,000 bags of arabica from
the 2003 harvest, but the beans are now too old to be of
interest to exporters. It has been trickling coffees dating
back to the 1980s onto the internal market for a while.
 
    MILD GRADES DWINDLING
    Brazil is now running low on mild coffees which is pushing
up their prices on an almost daily basis. But exporters usually
buy several months ahead to cover deliveries they have
committed to, and Silva said there was "not the slightest
chance" they would default on their contracts.
    The extent of the rise in coffee prices since the middle of
last year has inflated costs for roasters and retailers such as
Starbucks, which said in January the high cost of beans was set
to dent its profits as it tried to absorb the increases.
    It may not have been exposed to the full force of the price
rise yet as the company says it has bought all the coffee it
needs for 2011 and for a few months of 2012. 

    Analysts say global coffee production is failing to keep
pace with rising consumption. The world's No. 2 arabica
producer, Colombia, has had a run of disappointing harvests and
Brazil is heading into a smaller 'off-year' crop in 2011.
    Brazil's crop supply agency Conab estimated in January the
forthcoming 2011 harvest will be 41.9 million to 44.7 million
60-kg bags, down from last year's 48.1 million bags. Riberio
said he has received good feedback on the crop's development
since then.
 (Additional reporting by Marcy Nicholson; Editing by Raymond
Colitt and Jim Marshall) 

   

Saturday, 19 February 2011 04:49:06