Arabica-coffee futures that lost half their value in the past two years will extend their slump to the lowest price since 2009 as record global output led by Brazil overwhelms rising demand, a survey showed.
The bean variety favored by Starbucks Corp. and Dunkin’ Brands Group Inc. in their premium coffees will slip to $1.257 a pound by June 30, according to the average estimate of 14 brokers and analysts surveyed by Bloomberg. That will mean a 10 percent drop from yesterday’s close of $1.3965 in New York.
Brazil, the world’s largest grower and exporter, harvested a record 54 million bags in the most-recent season, consultant Safras & Mercado estimates. With the next harvest set to begin in May, stockpiles at warehouses monitored by ICE Futures U.S. already are the highest since March 2010. The glut prompted 6 percent price cuts last month by J.M. Smucker Co. and Kraft Foods Inc. on retail Folgers and Maxwell House coffee brands.
“We haven’t seen these carryover stocks in many years,” Christian Wolthers, the president of Wolthers America, an importer in Fort Lauderdale, Florida, said in a telephone interview. “Prices will probably bottom out around $1.20 by May. Producers are retaining coffee. At some point they will have start selling to make room for the new crop.”
Money managers and other speculators have been bearish on arabica futures since July, and as of March 5 boosted their net-short position, or bets on a price slide, by 6.8 percent from a week earlier, government data show. Prices are down 55 percent from a 14-year high in May 2011 as production rose and after many roasters increased use of the cheaper robusta beans traded on London’s NYSE Liffe exchange.
The high prices of two years ago and improved farming practices helped to boost output in Brazil, where inventories totaled 28 million bags on Jan. 1, according to exporter Terra Forte Exportacao e Importacao de Cafe Ltda.
From July 1, the start of the current marketing year, through Feb. 28, farmers sold just 71 percent of the harvest, down from 87 percent a year earlier, Port Alegre, Brazil-based Safras & Mercado said. That means 15.7 million of the beans from the most-recent crop were unsold. Gathering of this year’s arabica harvest, will be the highest ever for a lower-yielding half of the two-year production cycle, according to growers cooperative Cooparaiso.
In the 12-month marketing season that started Oct. 1 in most countries, world production will climb to a record 144.4 million bags, the London-based International Coffee Organization estimates. The global surplus may be as high as 10 million bags, with most of it representing arabicas, Oscar Schaps, managing director of soft commodities trading at INTL FCStone, said in a telephone interview from Miami.
Prices may halt the slump on further signs of damage from a fungal disease in several Latin American countries, and if current dry conditions worsen in Vietnam, the world’s top producer of robustas, traditionally used to make instant drinks by companies including Nestle SA, according to Sterling Smith, a futures specialist at Citigroup Inc. in Chicago.
Leaf rust, a fungus that attacks plant foliage and curbs productivity, will probably reduce output and bean quality this season and next in Guatemala, Honduras, El Salvador, Costa Rica, Nicaragua and Mexico, the ICO has said.
“The rust problem is very serious, and its effect will be more pronounced next year,” said FCStone’s Schaps, who toured Central America farms in February. Reduced output probably will boost cash-market prices for specific varieties cultivated in the regions battling the disease rather than futures, which reflect the global supply, he said.
Brazilian shipments from July, the start of the marketing season, through February slid to 20.39 million bags from 21.51 million a year earlier, when the nation collected a smaller crop, according to data from Cecafe, the country’s exporters’ council.
That is why there are so few market bulls, because stockpiles “will have to be dumped sooner or later,” Rodrigo Costa, trading director at Caturra Coffee Corp., a dealer based in Elmsford, New York, said in a report e-mailed March 11.
By the third quarter, market attention will turn to weather developments in Brazil, where severe drops in temperatures during the winter months can trigger damaging frosts, according to Wolthers. By September, traders will focus on the arrival of rains needed for development of next year’s crop, with both events providing support to prices, he said.