Analysis: Global coffee market tight despite price slump By Maja Wallengren GUAXUPE, Brazil (Reuters) - The latest retreat in arabica coffee prices signals the tightly supplied coffee market is not running out of beans yet, but the outlook for sub-optimal harvests and faster consumption indicate that by next season it could come close. A tour of coffee areas in the world's top arabica grower, Brazil, showed a good but sub-optimal crop on the way. But in Colombia, output has dropped sharply and poor harvests have become almost a chronic problem. On the demand side, things remain tight, with stocks in the United States and Europe totaling just about a month's worth of global demand. Despite the tight market, prices of coffee futures on ICE have been hovering near a 17-month low hit on March 12. "There is a bit of supply available but you have a deficit year coming so we have to be awfully careful here and not be too bearish," said Eric Nadelberg, Senior Vice President at Jefferies Bache, LCC in New York. "There is not a lot of coffee and as we move forward this will become more acute," he told Reuters. Despite record exports last season, European stocks of arabica and robusta are at their lowest since 2005/06, as consumers down more cups. Stocks there stood at just over 10 million bags by end-December, with 4.2 million bags in the world's top coffee consumer, the United States, at the same time. There have been two schools of thought over how coffee's fundamentals will influence the price of arabica beans -- more expensive than robusta. Arabicas are typically roasted and ground for brewed coffee while robusta is used in instant coffees or in blends with arabica. Coffee market bears focus on expectations of a large Brazilian crop. Bulls point to the series of ever-smaller crops coming out of Colombia and other arabica producers in Central America and East Africa, a trend likely to continue. On top of that, low certified arabica stocks at New York's ICE exchange which remain close to their lowest in 11 years at around 1.6 million bags. Until now, the bears have dominated, as the benchmark arabica contract trading on ICE Futures U.S. is down more than 40 percent from its 34-year high at $3.0890 per lb, reached in May 2011. Nadelberg takes the view that the market will rally as production lags demand in the United States and Europe. We have a deficit year and we should trade higher coming into the main roasting season again. I look for it to get tight coming back to about the 3rd quarter, and by the 4th quarter the market should rally back," he said. Brazil coffee output from 2000 link.reuters.com/ruw85s Graphic on Colombia harvests: r.reuters.com/zad78r Colombian production, exports: r.reuters.com/wet48r Better weather could have made the difference between a good and a great coffee crop in Brazil and put Colombia back on track after a run of poor crops. A few million bags more from both would have left the market much more comfortably supplied. Brazil's is "not going to be the mother of all crops," said John Wolthers, a veteran coffee trader with exporter Comexim in the main port town of Santos. Comexim's crop estimate is among the highest of its private sector peers at 55.8 million bags. Two damaging spells of drought during the critical flowering phase and again as beans were filling out, were enough to kill off hopes of a bumper or record crop. The 2012/13 harvest comes in a so-called 'on year' in Brazil's biennial cycle which causes output to rise one year and fall the next as trees recover. That is why producers are using the 2010/11 harvest as the comparative reference for this crop. The Brazilian government's crop agency, Conab, forecasts the crop at a median 50.6 million 60-kg bags while private forecasters see between 52 and 55 million bags, less than that picked in 2010. Conab's number comprises of 37.7 million bags of arabica beans and 12.9 million bags of robusta beans. In Colombia, little improvement is seen after four harvests in which output was suppressed by heavy rain, leaf rust and pests, negating the effects of tree renewal programs. "The harvest is not good, we continue to have many problems and in the best case we may get as much as last year," said producer Hernan Castillo. The mitaca or mid crop in the 2010-11 cycle was one of the smallest in the last 50 years in Colombia. A drive through the La Union coffee region confirmed reports from a Colombian Coffee Federation representative that many producers had uprooted and replanted trees afflicted by rust disease. The fungus weakens trees which lose foliage and it has spread at an alarming rate in some southern provinces of late. This is the worst crop ever. The main crop is gone, and the mitaca is bad, so as far as the 2011-12 coffee year is concerned it's going to be hard for Colombia to get to even 7.5 million bags," said a trader with a large exporter in Bogota. Prior to its current problems Colombia used to produce between 11 and 13 million bags - a now-elusive level coffee importers have mourned ever since. Easing coffee prices which could boost consumption further still and the certainty of a smaller Brazilian crop in the following 2013/14 crop year offers little reassurance that an awry supply and demand balance will invert any time soon. "It's a difficult situation," Jeffries Bache's Nadelberg said. Additional reporting by Marcy Nicholson in New York; Editing by Peter Murphy and David Gregorio