New York. home of the 54 cup of coffee, may be where the commodity gets its next price jolt.

Prices for arabica coffee beans on the New York Board of Trade may climb more than 20 per cent in the next 12 months and outperform some of this year's best commodities investments, including copper and silver.

Demand for the beans is coming front Procter & Gamble Co. whose Folgers brand is the best-selling US coffee, and Kraft Foods Inc, the maker of Max-well 1-louse. Coffee sellers arc turning to the arabica beans traded mostly in New York after a cheaper coffee variety called robusta rallied to a seven-year high in London last month.

Robusta & oilier grades

"Now that robusta is proving up. it's bringing other grades into play.' said Mr. Raymond Keane. a coffee trader in Charleston, South Carolina, for Balzac Bros & Co, which supplies the commodity for Procter & Gamble and Kraft.

Coffee in New York might reach $1.30 a pound by the middle of next year, said Mr Michael Coleman, Managing Director at Singapore-based Aisling Analytics. who helps run the Merchant Commodity Fund with $370 million. Arabica futures are little changed at about $1.08 this year. While robusta on the Euronext.liffe exchange in London jumped 32 percent.

The forecast for New York coffee compares with Macquarie Bank Ltd's prediction for a decline in copper. which jumped 75 percent this year. Silver. up 48 percent so far, will gain only 17 percent in 2007. Zurich-based analyst Mr. Edward Ennis at Julius Baer Holding AG forecast in July.

Arabica Rally

The International Coffee Organisation forecasts a 2 percent rise in global coffee consumption to 7 million tonnes full). helped by record growth at Seattle-based Starbucks Corp. the world's largest coffee-shop owner. Brazil. the world's biggest coffee producer. is unlikely in 2007 to repeat its bumper crop 42.49 rut this year, according to Conab, the forecasting agency for the nation's Agriculture Ministry.

About two-thirds of the world's coffee conies from arabica beans, which are used by coffee shops such as Starbucks. The rest is robusta, used in instant coffee. espresso and lowcost blends. Coffee futures in London have risen in the past year as production from Vietnam. the largest robusta grower. declined because of a drought. Prices reached $1.586 a tonne on August 22. the highest since 1999. at ter water damaged inventories in Italy.

Brazil Crop

Arabica prices haven't kept pace because Brazil this year is harvesting its second-biggest crop ever. Its Government on August 25 raised its estimate of Brazil's production to 41.6 million bags, with arabica accounting for 77 percent of the total. A bag of coffee weighs 60 kg (132 pounds). Chances are Brazil's 2007 crop will decline because trees usually rest after a big harvest. The record crop of 53.6 million bags in 2002 was followed by a 38 percent drop in output.in 2003, the US Department of Agriculture estimates.

Dry weather is also hurting Brazil's plantations. and the flowering that starts in October will be damaged if' there is no rain soon, hurting next year's crop.

Roasters fluting

Coliee roasters such as Cincinnatibased Procter & Gamble change the mix of bean varieties the\, use depending on price and consumer tastes.

"To the extent the ratio between the two contracts is way out of line, there must become a price point where arabica will become more viable than robusta." said Mr. Scan Corrigan. Chief investment strategist at Diapason Commodities Ltd.. which manages $5 billion of coin modity investments.

The price spread between New York and London coffee is the narrowest in two \-cars, boosting the appeal for buyers looking to use store of the mild-tasting beans.

The premium for the most-acti%c arabica contract is 37 cents a pound, down from 92 cents in March 2005, data compiled by Bloomberg show.

"With r\orld stockpiles having come down a hit and the possibility of some production problems ahead for Brazil there's potential for the market to stove higher." said Mr. Col man from Ailsling Analytic "This rally is very little]) specific to Vietnarn, specific to delivery stocks around the London contract. There is very little coffee in Vietnarn."

Stockpiles in coffee-exporting countries have dwindle %%orldwide to their lowest in store than 40 s ears. the London-based lute mattunal Collcc Organization said.

Exports front producing countries declined 5.7 per cent in the 10 months through July reducing inventories in the US and Europe.

Rising Demand

One of the world's fastest-growing markets for coffee is Russia, which reported a 65 per eentjump in firsthalf imports this year to $48.6 million, outpacing the 5.9 per cent increase for tea still the nation's favourite hot beverage.

In the US, demand has grown as quality improved.

A 20 - ounce cafTc latte at a Starbucks in Manhattan cost $4.28, compared with 25 cents for a cup of 'coffee in ntanv restaurants before Si.u-bucks opened its first shop in Seattlc 1971.

------------------------------------------------------------------