COFFEE MAY FALL MORE BEFORE NEW QUOTA TALKS

  Coffee prices may have to fall even lower
  to bring exporting and importing countries once more round the
  negotiating table to discuss export quotas, ICO delegates and
  traders said.
      The failure last night of International Coffee
  Organization, ICO, producing and consuming countries to agree
  export quotas brought a sharp fall on international coffee
  futures markets today with the London May price reaching a
  4-1/2 year low at one stage of 1,270 stg per tonne before
  ending the day at 1,314 stg, down 184 stg from the previous
  close.
      The New York May price was down 15.59 at 108.00 cents a lb.
      Pressure will now build up on producers returning from the
  ICO talks to sell coffee which had been held back in the hope
  the negotiations would establish quotas which would put a floor
  under prices, some senior traders said.
      The ICO 15 day average price stood at 114.66 cents a lb for
  March 2. This compares with a target range of 120 to 140 cents
  a lb under the system operating before quotas were suspended in
  February last year following a sharp rise in international
  prices caused by drought damage to the Brazilian crop.
      In a Reuter interview, Brazilian Coffee Institute, IBC,
  President Jorio Dauster urged producers not to panic and said
  they need to make hard commercial decisions. "If we have failed
  at the ICO, at least we have tried," Dauster said, adding "now it
  is time to go and sell coffee."
      But Brazil is keeping its marketing options open. It plans
  to make an official estimate of the forthcoming crop next
  month, Dauster said. It is too difficult to forecast now. Trade
  sources have put the crop at over 26 mln bags compared with a
  previous crop of 11.2 mln. Brazil is defining details of public
  selling tenders for coffee bought on London's futures market
  last year.
      A basic condition will be that it does not go back to the
  market "in one go" but is sold over a minimum of six months.
      The breakdown of the ICO negotiations reflected a split
  between producers and consumers on how to set the yardstick for
  future quotas. Consumers said "objective criteria" like average
  exports and stocks should determine producer quota shares,
  Dauster said.
      All elements of this proposal were open to negotiation but
  consumers insisted they did not want a return to the "ad hoc" way
  of settling export quotas by virtual horse trading amongst
  producers whilst consumers waited in the corridors of the ICO.
      Dauster said stocks and exports to ICO members and
  non-members all need to be considered when setting quotas and
  that Brazil would like to apply the coffee pact with a set
  ratio of overall quota reflecting stock holdings.
      It is a "simplistic misconception that Brazil can dictate"
  policy to other producers. While consumer countries are welcome
  to participate they cannot dictate quotas which are very
  difficult to allocate as different "objective criteria" achieve
  different share-outs of quota, Dauster said.
      Other delegates said there was more open talking at the ICO
  and at least differences were not hidden by a bad compromise.
      Consumer delegates said they had not been prepared to
  accept the producers' offer to abandon quotas if it proves
  impossible to find an acceptable basis for them.
      "We want the basis of quotas to reflect availability and to
  encourage stock holding as an alternative to a buffer stock if
  supplies are needed at a later stage," one delegate said.
      Some consumers claimed producer support for the consumer
  argument was gaining momentum towards the end of the ICO
  session but said it is uncertain whether this will now collapse
  and how much producers will sink their differences should
  prices fall further and remain depressed.
      The ICO executive board meets here March 30 to April 1 but
  both producer and consumer delegates said they doubt if real
  negotiations will begin then. The board is due to meet in
  Indonesia in June with a full council scheduled for September.
      More cynical traders said the pressure of market forces and
  politics in debt heavy Latin American producer countries could
  bring ICO members back around the negotiating table sooner than
  many imagine. In that case quotas could come into force during
  the summer. But most delegates and traders said quotas before
  October are unlikely, while Brazil's Dauster noted the ICO has
  continued although there were no quotas from 1972 to 1980.
      A clear difference between the pressures already being felt
  by importers and exporters was that consumers would have been
  happy to agree on a formula for future quotas even if it could
  not be imposed now. At least in that way they said they could
  show a direct relationship between quotas and availability.
      In contrast producers wanted stop-gap quotas to plug the
  seemingly bottomless market and were prepared to allow these to
  lapse should lasting agreement not be found.
      "Producers were offering us jam tomorrow but after their
  failure to discuss them last year promises were insufficient
  and we wanted a cast iron commitment now," one consumer said.
  

