Coffee Supply Crises on Horizon for 2007

PRICE RISK

Veit expects the nearby coffee futures contract listed in New York to continue to trade between $1.05-$1.20 per pound during the next few months, unless bad weather -- frost or drought -- damages crops in large growing countries.

The last major frost in Brazil was in 1994, when the New York Board of Trade's nearby coffee futures contract had surged above $2 a lb.

June, July and August are Brazil's coldest months, though the South American country has seen only three significant crop-damaging frosts in the past 22 years.

"If we get to the end of August with no frost, there may be some pressure (on the market), but in general fundamentals favor an uptrend in prices in the last few months of 2006 -- due to an anticipated 2007/08 world production deficit," said Andrea Thompson, a UK-based analyst at CoffeeNetwork.

So long as NYBOT's nearby futures price fluctuates between $1.05 and $1.20 per pound, roasters may not have to adjust their list prices, analysts said.

On Thursday, the NYBOT's arabica contract for July delivery settled at $1.08 per lb.

"I don't see any major changes in the list price," said Judy Ganes of J Ganes Consulting. "But if the market sits at the upper end of the range for seven or eight weeks, that would be enough to trigger an increase -- even within the range."

Procter & Gamble Co. and Kraft Food Inc. are among the top coffee roasters, carrying popular brands like Folgers and Maxwell House.

The last time the companies adjusted their list prices for those brands was in August 2005, when sustained weakness in coffee futures prompted a 5 percent decrease in the list price for a 13-ounce equivalent can.