Brazil’s Leftover Coffee Sales May Send ICE Futures Even Lower

Coffee growers in Brazil, the world’s largest producer, still have more than half of this season’s record crop to sell, potentially helping extend declines for the biggest commodity loser this year.

Producers in the South American nation have yet to sell about 60 percent of the crop, according to a Bloomberg survey of 10 traders. The country’s output climbed to a record 50.5 million bags this season, the government estimates. Harvesting may end this month after rains delayed the crop about 30 days, according to Cepea, a University of Sao Paulo research group.

Arabica coffee futures slumped 23 percent this year, the most of the 24 items in the Standard & Poor’s GSCI gauge commodities prices. Certified coffee stockpiles in warehouses monitored by ICE Futures U.S. in New York climbed above 2 million bags on Sept. 7 for the first time since 2010, exchange data on Bloomberg showed. Supplies may expand as the harvest starts next month in Central America.

“At this time of the year, sales would normally be much more advanced, but the drop in futures this year caught many traders by surprise and some kept waiting for higher prices and that never materialized,” Rasmus Wolthers, a trader at coffee broker Wolthers & Associates, said by phone from Santos, Brazil yesterday. “September and October should be months of bigger sales and higher exports and that, coupled with the start of the crop in Central America, could be bearish for arabica in the short term.”

Bean Hoarding

Arabica coffee prices climbed to a 14-year high last year after output slumped in Colombia, the second-biggest grower of the variety. Higher prices allowed producers to slow sales, according to Kona Haque, an analyst in London at Macquarie Group Ltd., Australia’s biggest investment bank. A government program to finance inventories has also helped growers, she said.

“Brazilian producers have been very reluctant to sell this year as rains damaged part of the crop, so the ones who are well-capitalized are holding back their coffee, especially the higher quality beans,” John Wolthers, a coffee trader at Comexim Ltda., an exporter in Santos, said by phone yesterday.

Demand for arabica coffee, used by Seattle-based Starbucks (SBUX) Corp., the world’s biggest coffee-shop owner, has slowed this year as roasters switched to cheaper robusta beans, used in instant coffee and espresso. Robusta usage climbed 5 million bags in 2010-11 and 2011-12 at the expense of arabica, Macquarie estimates. Robusta will account for 46 percent of all coffee consumption in 2012-13, up from 44 percent this season, according to Volcafe, a unit of trader ED&F Man Holdings Ltd.

Brazil Exchange

Coffee on Brazil’s futures exchange BM&F Bovespa climbed above the New York price last month for the first time since February. “The BM&F prices trading above ICE last month show producers aren’t well-hedged,” Comexim’s Wolthers said. Coffee futures for December delivery on ICE are $1.7405 a pound, compared with $223.20 a bag ($1.69 a pound) on BM&F.

“Brazil is a bit late in hedging this year, but producers won’t flood the market with coffee as some are expecting,” Jayme Neto, export manager at Terra Forte Exportacao e Importacao de Cafe Ltda., said by phone from Sao Joao da Boa Vista yesterday. “The rains have taken away from the market a large percentage of the good quality beans that usually gets hedged on the BM&F and that’s why you see higher prices there in relation to New York. Demand has been weak but you also don’t see the producer willing to sell.”

To contact the reporter on this story: Isis Almeida in London at Ialmeida3@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at Ccarpenter2@bloomberg.net.

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