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Coffee Posts Longest Slump in 11 Years on Supply Outlook

Coffee Heads for Longest Slump in 11 Years on Supply Outlook
Weather conditions remain ideal for trees in Brazil, and coffee production may reach 55 million to 60 million bags next year, Flavour Coffee, a Rio de Janeiro-based broker, said yesterday. The country’s crop-forecasting agency projected 47.5 million bags this season. Photographer: Dado Galdieri/Bloomberg

Oct. 25 (Bloomberg) -- Coffee futures fell, capping the longest slump in 11 years, as the crop outlook improves in Brazil, the world’s largest grower, boosting speculation that the global glut will expand.

Weather conditions remain ideal for trees in Brazil, and production may reach 55 million to 60 million bags next year, Flavour Coffee, a Rio de Janeiro-based broker, said yesterday. Conab, the country’s crop-forecasting agency, projected 47.5 million bags this season. Output in Colombia, the second-biggest arabica grower, was forecast to top a government target.

Global production is set to exceed demand for the fourth straight time, pushing inventories to a five-year high, according to the U.S. Department of Agriculture. The glut is helping to cut costs for Starbucks Corp. and Kraft Foods Group Inc. Arabica futures have tumbled 24 percent this year. Today, the price touched $1.088 a pound, the lowest for a most-active contract in more than four years.

“Colombia production is improving, and weather for Brazil’s crop next year has been fabulous,” Sterling Smith, a futures specialist at Citigroup Inc. in Chicago, said in a telephone interview. “We will probably hit $1 for this market to establish a bottom.”

Arabica coffee for December delivery declined 1.1 percent to settle at $1.091 at 2 p.m. on ICE Futures U.S. in New York. The commodity posted the ninth straight drop, the longest slide since January 2002. The price headed for the third consecutive annual decline, the longest skid in 20 years.

Global Outlook

Global production, including the robusta variety that accounts for 41 percent of supply, will exceed demand by 4.46 million bags in the 2013-2014 season, from a 10 million-bag surplus a year earlier, according to the USDA. Inventories will reach 30.53 million bags, the highest since the 2008-2009 season. A bag weighs 60 kilograms, or 132 pounds.

Arabica is grown mainly in Latin America and brewed by specialty companies including Starbucks. Robusta beans, used in instant coffee, are harvested in Asia and parts of Africa.

Cheaper beans prompted J.M. Smucker Co. to cut prices in February for Folgers, the top-selling U.S. brand. Kraft said May 3 it would cut the price of 12-ounce bags of Gevalia coffee by 6 percent.

Robusta futures for January delivery fell 2.8 percent to $1,538 a metric ton (69.76 cents a pound) on NYSE Liffe in London. Earlier, the commodity touched $1,536, the lowest since June 18, 2010. The price has tumbled 20 percent this year. Brazil is the second-biggest producer.

The arabica premium to robusta has averaged 43.74 cents a pound this year, compared with 84.62 cents in 2012.

Among the 24 raw materials in the Standard & Poor’s GSCI Spot Index, only corn and silver have posted bigger declines this year than arabica.

To contact the reporters on this story: Luzi Ann Javier in New York at ljavier@bloomberg.net; Marvin G. Perez in New York at mperez71@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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