Arabica Coffee Gains as Investors May Start Buying; Sugar Slides

Arabica coffee climbed for a second day in New York on speculation investors will start buying futures just as Brazil, the world’s leading producer, authorized credit lines to support growers. Sugar fell and cocoa rose.

Large and small speculators excluding index funds tripled bets on lower coffee prices in the four weeks to June 11, U.S. Commodity Futures Trading Commission data compiled by Bloomberg showed. Brazil approved 3.16 billion-reais ($1.4 billion) in credit for coffee growers to fund activities including storage, purchases, option contracts and plantation recovery, the Finance Ministry said in a statement yesterday.

“With the funds having a large short position at the C, it is less likely at this moment to see the breaching of the $1.10 per pound,” Rodrigo Costa, a trading director at Elmsford, New-York-based Caturra Coffee Corp., said in a report e-mailed yesterday, referring to the arabica futures contract known as C. “A strong price recovery seems unlikely as well.”

Arabica coffee for September delivery was up 0.3 percent to $1.239 a pound by 6:10 a.m. on ICE Futures U.S. in New York. Robusta coffee for September delivery gained 0.1 percent to $1,765 a metric ton on NYSE Liffe in London.

Brazil is harvesting its 2013-14 crop and production will be a record for a year in which trees enter the lower-yielding half of a two-year cycle, the government estimates. Output will be 48.6 million bags, crop-forecasting agency known as Conab said on May 14. A bag of coffee usually weighs 132 pounds. Speculators’ net-short position, or bets on lower prices, amounted to 33,569 contracts, CFTC data showed.

Production Costs

Arabica coffee is trading below the cost of production in Brazil, government data showed. Growers in Guaxupe, where Cooxupe, the country’s biggest coffee exporting company is located, produce beans for 377 reais a bag, data on the Conab website showed. That would mean costs of about $1.31 a pound, or 5.8 percent above prices now.

“In a scenario of coffee surplus, prices tend to find the lowest production cost,” Costa said. “I dare to say that we have seen these levels to be breached and painfully kept below production costs for some time.”

Raw sugar for October delivery was 0.5 percent lower at 16.98 cents a pound in New York. White, or refined, sugar for August delivery fell 0.1 percent to $488.90 a ton in London.

Cocoa for September delivery was up 0.4 percent at $2,219 a ton on ICE. Cocoa for delivery in September gained 0.3 percent to 1,456 pounds ($2,274) a ton on NYSE Liffe.

To contact the reporter on this story: Isis Almeida in London at ialmeida3@bloomberg.net

To contact the editor responsible for this story: John Deane at jdeane3@bloomberg.net

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