VOLCAFE LTD

WEEKLY MARKET REVIEW OCTOBER 19 - 25, 2012

October 26, 2012

BRAZILIAN EXPORTS AN ACID TEST FOR ARABICA DEMAND

1. GENERAL last season, ie the 11/12 coffee year, arabica coffee disappearance fell by a startling 6% on the year to just 60.8 mio bags by our preliminary count. we use disappearance to guide our demand estimates. we are expecting arabica demand in importing markets to rebound a touch in 12/13. perhaps not to 10/11 levels, but at least back to 09/10 levels. part of this rebound would entail that the brazil arabica export pace would pick up. to support any arabica demand rebound forecast, brazil should be exporting more than 3 mio bags of coffee this month. october is normally the largest export month of any crop year in brazil. cecafe say today that the rate of exports is up only one-third on last months dire volume of exports. at this rate, the 3 mio bags wont be reached. arabica demand is thus so far underperforming expectations, again. all this is not to say total coffee demand is struggling. on the contrary. conservatively, we estimate 11/12 global coffee demand at 141.5 mio bags, and see almost 146 mio bags of global coffee demand in 12/13. the world cannot get enough of robusta. in new york we estimate specs are short 22k lots, and index funds 42k lots long. london fund position +11k lots long. ice certified stocks at 2.39 mio bags, liffe certified stocks at 1.99 mio bags.

2. PRICE COMPARISON (all in cts/lb) ice dec 12 liffe nov 12 arbitrage ice dec 12/liffe nov 12 25.10.2012 161.00 92.03 68.97

change vs 18.10.2012 2.40 0.36 2.04

comments basis ice dec 12 at 160.85 and liffe nov 12 at 2026 ice: commerce and industry are sticking to the sidelines for now. arabica is taking a small breather as higher lows and lower highs are forming a pennant over the week. look for a definitive break of the 159 area to dispel this and for the downtrend to resume. support: 157.2, 156.6, 153.8, 140. resistance: 161.8, 162.5, 165.7, 170. liffe: robusta volume has been abysmal the last few days. already ranging between 1980-2220, the price has, like ice, retreated to an even tighter range over the week. both markets are waiting for some action which will likely be significant when it comes. support: 2015, 2000, 1980, 1822, 1713. resistance: 2072, 2112, 2217-2223.

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3. BRAZIL local market: the small ny rally early this week brought more volume to the market. moderate size was traded and producers are holding large stocks. replacement differentials have not changed much, with fine cups still trading around level money internally. bmf/ny arbitrage a bit softer. october shipments should finish higher than september, but well behind october 2011. export activity: again, very little activity. fine cup coffees remain expensive. some exporters offered good cup qualities below local market levels, finding some demand, but only for first half 2013. weather: increased rains, and more shower activity is forecasted for next week. bmf: z 206.50 (unch) arbitrage bmf/ice: z/h 9.00 (2.00 softer) exchange rate: 2.0250 (reval 0.20%)

4. COLOMBIA/LATIN AMERICAN MILDS colombia: the internal coffee flow did not change much, prices remain firm. outside interest was scattered with most interest focusing on nearby shipments. guatemala: some coffee producing areas, such as huehuetenago, are expecting a very good crop and producers are happy with the crop development. although there are some small outbreaks of roya, plantations look in very good shape, good bean development and size, and the work of producers in terms of fertilization, renewal of plantations and cultural practices is evident. honduras: no great change in the flow of coffee yet. external demand was on-and-off with main interest for early shipment periods, offering diffs unchanged. costa rica: outside demand was patchy, quick shipment periods attracted most attention. peru: mainly low qualities were available in the internal market as farmers do not want to sell the better qualities due to the present ice prices. the amazonas as well as the cajamarca regions received good rainfalls. the flowering in the central regions is in full swing.

5. AFRICA/PNG kenya: no auction this week. harvesting progressing well and first main crop estate qualities expected to be available for shipment late december/january. sporadic demand in all grades for nearby shipments. tanzania: some 27,000 bags on offer this week, whereof some 4,000 bags received no bids at all due to questionable quality. average waiting time for a vessel in dar es salaam has increased to 21 days. ethiopia: only limited origin biz reported this week. firm ecx prices of specially sundried lekempti coffee preventing exporters from offering at competitive levels. harvesting of new crop expected to start in earnest early november in sidamo region. uganda: drugars have tightened up on the back of strong internal demand. washed qualities attracting increased attention, diffs tending softer. png: ongoing poor supply pushing local prices higher. wet weather reported from the highlands as well as lae port, with time between eta & etd of vessels in port increasing. no fresh biz reported.

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6. ROBUSTAS vietnam: ideal weather for the start of the season with good sunshine drying the first pickings. local market has been lively with good buying opportunities. stable forex and lending rates encourage new crop sales from viet shippers. exports are up 73% year on year as the end of the old crop finds its way out. fob market very active this week despite a depressed liffe. offers from every corner, for all specs with good diffs. we see trade covering their dec/jan shipments and stockpiling in warehouses as well. indonesia: volume of asalan has slowed down to between 800 900 mt arrivals per week. differentials remain steady, due to lack of coffee bean availabilities. asalan traded between idr 18,500 and 19,750 per kg this week. local activities are quiet, in conjunction with idul adha celebration on 26th october 2012. usd remains firm, and traded in the range of 9,610 9,635. uganda: there is a very small early flow from the east where the crop is not as promising as in the central area. the weather is hot, sunny and harvest friendly. the shilling hovers around the 2600 mark. logistics are ok.

7. ORIGIN DIFFERENTIALS FOR NOV/DEC SHIPMENT CTS/LB FOB this week brazil swedish c 19 colombia excelso c + 10 honduras hg c 4 kenya ab faq c + 34 vietnam gr 2 liffe 25 indonesia gr 4 (max. 80 defects) liffe + 30 regards VOLCAFE LTD

last week c c + c c + liffe liffe +

19 9 4 34 10 30