Coffee Futures Fall to Three-Year Low on Inventory Surge
Coffee futures fell to the lowest in more than three years on mounting speculation that global supplies will exceed demand amid bumper crops in Brazil, the world’s top exporter.
Inventories monitored by ICE Futures U.S., up 80 percent in the past 12 months, are close to the highest in three years. Next season, shipments by Brazil may rise 5.9 percent because farmers have unsold supplies from the previous record crop, Cecafe, an exporter group based in Sao Paulo, said this week.
In the past 12 months, arabica coffee has tumbled 26 percent, the most among 24 raw materials in the Standard & Poor’s GSCI Spot Index. The variety is grown mainly in Latin America and brewed by companies including Starbucks Corp. (SBUX) and Dunkin’ Brands Group Inc. (DNKN) This year, Brazilian farmers will gather a record crop for a lower-yielding half of a biennial cycle, the government said last week.
“This is a situation of abundance,” Christian Wolthers, the president of Wolthers America, an importer in Fort Lauderdale, Florida, said in a telephone interview. “There are no frost threats coming over the coffee belt in Brazil, and the recent dry weather may actually result in more cherries per tree.”
Arabica-coffee futures for July delivery fell 3.2 percent to settle at $1.2845 a pound at 2 p.m. on ICE in New York. Earlier, the price touched $1.2825, the lowest for a most-active contract since Feb. 25, 2010.
Trading was 40 percent higher than the 100-day average for this time, according to data compiled by Bloomberg. The price dropped for the seventh straight session, the longest slump in two months.
Crop damage from the roya fungus in Central America will reach 2.7 million bags, costing $500 million, the International Coffee Organization said this month.
“A lot of Brazil’s arabicas may serve as substitutes for the Central America coffees,” said Wolthers, who has been trading coffee for more than three decades. “Roasters have been waiting cautiously, hoping to buy at cheaper prices. This market traditionally has bottomed by July, if there is no damaging weather.”
The futures slump may reduce costs for J.M. Smucker Co., the maker of Folgers, the top retail brand in the U.S., and Kraft Foods Inc., which sells Maxwell House and Gevalia coffees. Both companies cut prices this year.
The arabica premium over robusta, used in instant-coffee blends, extended a decline to the lowest since late March.
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