ANALYSIS-Colombia rains risk new jolt for coffee prices

BOGOTA, March 25, 2011 - Bright sun in main Colombia coffee areas has boosted flowering -- a key process for predicting the main harvest at the end of 2011 -- and helped stress trees to break the dormancy of flower buds in the world's top producer of high quality Arabica beans.

Trouble is, there are dark clouds on the horizon threatening the crop with as much as three times more rain as usual over the next few months. Hail could kill the fruits or knock beans from trees; landslides could wipe out trees.

If the tail end of the La Nina weather phenomenon drenches key areas, as some forecasters predict, it could thwart hopes for a recovery in the crop after two successful shortfalls in the world's No. 3 coffee exporter.

That could put more upward pressure on coffee futures which have doubled in nine months to three decade highs. Roasters like Starbucks and Maxwell House maker Kraft , who already have raised prices, would feel the squeeze.
In the first two weeks of March, one key Colombian coffee capital got more rain than the average for the entire month. Although the La Nina condition that helped cause it is now ebbing and likely to end by summer, worse may be in store.
"April and May will be pretty rainy months with levels higher than those reported so far in March. Our models and forecasts show that rains will be above the average especially in the Andean region that includes the coffee regions," said Daniel Useche, a meteorologist at Colombia's weather office.
"This happens because the first rainy season will combine with La Nina. That will increase the intensity of rains."
The IDEAM office said the Eje Cafetero provinces of Antioquia, Caldas, Risaralda and Quindio would likely get two to three times more rains than average. Coffee producers say rainfall of 10 percent to 30 percent above the average is not damaging. Above that, it starts getting bad.
Colombia was hit by bad weather and pests in the previous two years, cutting production by about a third its norm. This year's crop is forecast to rebound to 9 million to 9.5 million sacks -- still below historical averages near 12 million.
Colombia's coffee have a big impact on the market as its beans among the most prized. Much of the latest rally has been driven by a scramble for high-quality beans, analysts say.
"Fundamentals show that coffee prices will remain at the current levels as there are problems with the Colombian and Brazilian harvests," said Alex de Marzi of Macquarie Bank.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic on Colombia harvests, province output: http://r.reuters.com/zad78r Graphic on Colombian coffee prices: http://link.reuters.com/jab78r Colombia coffee production, exports: http://r.reuters.com/wet48r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

In the worst case, dire April-May rains could wipe out the benefits of several dry months that boosted flowering for coffee bushes. Rains are then needed to develop cherries, which appear and ripen around eight months after flowering, changing color from green to bright red. At this stage the coffee is ready for harvesting.
The intensity of rains sets conditions for formation of fruits, growers said, adding that the outlook is far from apocalyptic.

EXCELLENT START
"Flowering especially in January and February was excellent. Production of that flowering is saved for the main harvest because the fruits are already formed," said James Maya, director of coffee growers for Risaralda province.
 

That state accounts for 7.1 percent of the country's total output and expects output of slightly more than 511,000 60-kg bags for its main harvest later this year.
 

Growers harvest the main crop mainly from October to December in the central provinces of Antioquia, Caldas, Quindio, Risaralda and North of Valle, which account for 51.9 percent of total national output.
 

"Coffee flowering in Antioquia ... has been good in general but a good main harvest not only depends on a good flowering but on a proper fertilization and normal weather," said Luis Fernando Botero, director of coffee growers for Antioquia province, Colombia's largest producer.
 

In areas such as parts of Risaralda and north of Caldas, growers also had good flowering. Those states could have additional flowering until the end of March or the start of April but more sun is needed, growers said.
 

"Flowering have been really good thanks to good sun compared to what has been announced in December when it was predicted a continued rainy season until May. That has not been the case," said Mario Gomez, director of coffee growers for Caldas, whose output is 11.8 percent of the national total.

DISEASE THREAT
In other areas such as Manizales city, the capital of Caldas province -- the country's second largest producer -- downpours resumed in March. In the first 14 days of March, Manizales received 10 percent more rain than the average for the whole month, the country's weather office says.
 

Abrupt moves from dry weather to strong rains can cause the appearance of roya and other fungi, Colombia's agriculture institute says, and current conditions are creating the breeding ground for its reappearance. The roya fungus attacks coffee leaves, affecting the process of photosynthesis.
 

Last year, about 300,000 hectares of the total 900,000 coffee hectares were hit by roya prompting growers to cut trees planted with the varietal Caturra -- which has high production and good quality but is not resistant to roya -- and replanted with resistant varietals.
 

"The problem that is happening now with rains is the resurgence of roya, which means (growers) have not replaced an important part of the trees susceptible to the illness," said Jaime Vallecilla, a coffee expert and author of several books on Colombian coffee. -----