Are volatile Arabica coffee prices affecting Tata Coffee?

Below is a verbatim transcript of his interview with CNBC-TV18’s Ekta Batra and Reema Tendulkar. For complete details watch the accompanying video.

Q: Arabica coffee was up around 2% odd in the futures market yesterday. What does this mean for Tata Coffee in particular considering 30% of your volumes are Arabica coffee?

A: The volatility in coffee prices, particularly, Arabica we will see for sometime. Globally, we have the lowest carry forward stock in a decade. That’s in Brazil and Colombia, who are large Arabica product producers are down this year. This is against a backdrop of global consumption which has been rising stably at over 2%.

So any adverse news will lead to a spike. As far as Tata Coffee is concerned, we have booked a lot of our coffee in the last rally when the prices had been Rs 280-290 and for the balance quantity that we still got uncommitted we are taking advantage of these spikes to pickup our overall average realization for FY11-12.

Q: What has the broad trend been with respect to Arabica coffee prices in Q1 vis-à-vis what the prices were in Q4?

A: In Q1 there was an adjustment. The market has stabilized at about 260-265 cents then it suddenly dropped severely down to 240 cents. That was basically an adjustment which we could not hold. The whole thing is driven by what is the stock available. The stock with the origins are very low, consumption in the consuming countries are high.

So any adverse news will lead to a severe spike in prices. Again this will correct. I am not saying this rally will continue, it will correct. What we saw a year ago, now we are looking 130-160 cents as the base. The market has corrected to about 247 cents, it has gone back to again 259 cents and has crossed 260 cents today.

We understand that market has accepted this price. This price has been passed through by the roasters to the final consumers. We are seeing a firm trend in coffee and this is against the backdrop of failure in production in Columbia and news of frost in Brazil’s Parana. So the underlined tones are bullish for coffee.

Watch the entire interview by clicking on the video...

Also read:

No confirmation from govt on removal of customs duty: Ceat