Goldman Sachs Cuts Arabica Coffee Forecasts by 7.7% on Weather

Goldman Sachs Group Inc. cut its price forecasts for arabica coffee traded in New York by 7.7 percent, citing favorable weather and the biggest stockpiles of the variety favored by Starbucks Corp. (SBUX) in five years.

The beans traded on the ICE Futures U.S. exchange will be at $1.20 a pound in three, six and 12 months, the bank said in a report e-mailed today. That’s down from last month’s forecast for $1.30 a pound. Arabica coffee futures fell 20 percent this year on signs of bigger harvests in leading producer Brazil and Colombia, the second-biggest grower of the variety.

“Arabica coffee prices continued to decline last month on larger than expected Colombian production and favorable weather for the upcoming crop in Brazil,” Damien Courvalin, an analyst at the bank in New York, wrote in the report.

Futures are heading for a third year of declines, the longest losing streak since 1993. The commodity is the fourth worst performer this year in the Standard & Poor’s GSCI gauge of 24 raw materials, with only gold, silver and corn down by more. Stockpiles at the end of this season will be 30.5 million bags, the highest since 2008-09, estimates the U.S. Department of Agriculture. A bag of coffee weighs 60 kilograms (132 pounds).

Coffee prices could rebound if there are further cuts to production in Central America, where leaf rust disease has hit crops, or if funds decide to close out bets on lower prices, Goldman said. Large and small speculators excluding index funds have been betting on lower prices since 2011, data from the U.S. Futures Trading Commission compiled by Bloomberg showed.

Arabica coffee for December deliver was little changed at $1.1475 a pound on ICE by 5:53 a.m. in New York.

Sugar Surplus

While the global sugar surplus will be smaller this season than previously expected because of import demand from China and Indonesia, stockpiles will rise for a fourth consecutive season, Goldman said. Prices rallied 11 percent last month as rainfall reduced output in Brazil’s center south, the main growing region of the world’s leading producer, and funds started buying.

“We view the recent rally as likely excessive given current fundamentals, exacerbated by the covering of large net short ICE speculative positions,” Courvalin said.

Sugar prices will be at 17.50 cents a pound in three months and 19 cents a pound in six and 12 months, the bank forecasts. The sweetener, which fell to as low as 15.93 cents a pound in July, was trading today at 18.96 cents a pound for March delivery.

Cocoa Inventories

Global cocoa inventories will decline for a second year as processing rises. Bean grinding in Europe gained 4.7 percent in the third quarter, according to the European Cocoa Association. In Asia, grindings rose 12 percent and in North America advanced 8.2 percent in the same period, according to the Cocoa Association of Asia and the National Confectioners Association.

Futures will be at $2,500 a ton in three, six and 12 months, the bank said. The forecast is below current prices because of record bullish speculators bets at a time of “high” stocks-to-use ratio, the bank said.

Cocoa for December delivery was down 1 percent to $2,740 a ton in New York. The beans used to make chocolate gained 22 percent this year, this year’s best performing commodity on the GSCI, ahead of cotton and natural gas.

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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