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POLL-First coffee deficit in years no savior for prices in 2016

By Luc Cohen
New York| Mon Feb 3, 2016 3:33pm EST

NEW YORK, Feb 3 (Reuters) - Coffee bulls should not expect the first deficit in six years to usher in a return to the days of $2-a-lb arabica prices, a Reuters poll of 13 traders and analysts showed on Wednesday.

The survey produced a median forecast of a global coffee deficit of 3 million 60-kg bags in the 2015-16 crop year, which ends in September. That would be the first deficit since the 2009-10 crop year's shortfall of nearly 10 million bags, according to the U.S. Department of Agriculture.

But the weak currency in top-grower Brazil will limit the rally to less than 15 percent off current prices around $1.20 a lb, not far off two-year lows.

Front-month arabica prices on ICE Futures U.S. KCc1 were seen rising to $1.2365 a lb by the end of the first quarter and $1.35 a lb by the end of the year.

Robusta prices on ICE Futures Europe LRCc1 were seen rising to $1,500 per tonne and $1,575 per tonne by the end of the first quarter and full year, respectively, up from $1,397 per tonne currently.

Ten respondents cited the Brazilian real BRL=, which dropped 50 percent during 2015 and is currently hovering near record lows against the U.S. dollar, as a key factor likely to drive the market.

Many said Brazil's 2016-17 production would rebound, but not by enough to outweigh a drawdown in inventories after years of drought.

"The Brazilian real will weaken further over the coming year, which will increase the incentive for Brazilian producers to export," said John Kovacs, senior commodities economist with Capital Economics in London, but noted that official stocks data showed depleted inventories.

Output in Brazil's 2016-17 crop year, which begins in April, was seen rising to 53.5 million bags, with median forecasts showing 39.5 million bags of arabica and 14.5 million bags of robusta.

That was up from the International Coffee Organization's (ICO) 2015-16 estimate of 43.2 million bags but down from initial expectations from traders and banks for a 2016-17 crop closer to 60 million bags.

Production for 2015-16 in top robusta producer Vietnam, whose crop year began in October, was seen at 28 million bags, up from the ICO's 2014-15 figure of 26.5 million bags.

"The record speculative short position in robusta could get spooked by a rapid drawdown of London certified stocks and cause a sizeable short-covering rally," said Shawn Hackett of Hackett Financial Advisors Inc.



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