Ho Chi Minh City, Vietnam: World coffee consumption may outstrip production by as much as eight million bags (each of 60kg) in 2009-10 because of smaller crop in Brazil, the top grower, said Nestor Osorio, International Coffee Organization executive director.

“It’s a tight situation that will support prices,” Osorio said in an interview here on Tuesday. Prices of the mild-tasting arabica coffee used by Starbucks Corp. jumped 6.1% on Monday, the biggest gain in almost three years as Brazil’s farm minister Reinhold Stephanes said output may drop as much as 22% next year to as low as 36 million bags.

Prices of the bitter-tasting robusta used in espresso and instant coffee by Nestle SA climbed 4.3%.

Coffee is “at fair value” currently, said Pamela Thornton, a portfolio manager at Armajaro (USA) Inc., who runs a coffee and cocoa fund exceeding $400 million (Rs1,968 crore). “While prices have come down, they won’t suffer as much from the speculation in other commodities.”

Coffee has outperformed commodity indexes as prices plunged since the end of June.

Arabica has dropped 29% in New York compared with a 61% slump in the Standard & Poor’s GSCI Index of 24 raw materials. “If world output were to drop to 122-125 million bags, from 132.5 million, while consumption is about 130 million bags, we’re going to have a deficit from a surplus,” Osorio said. “The other origins cannot compensate for such a big fall of up to 10 million bags from Brazil.”

The world may have a surplus of 4.5 million bags in 2008-09, with production at 132.5 million bags and consumption around 128 million bags, according to ICO figures.

Osorio reiterated his forecast made on Monday for a Brazilian crop of 40 million bags, down from 45.9 million bags this year as trees enter the slower half of a two-year cycle.