Coffee Posts Longest Slump Since 1972 on Brazil Supply Outlook
Coffee futures capped the worst rout in more than four decades as wet weather signaled bigger crops than forecast in Brazil, the world’s largest grower.
Increasing precipitation in Brazil this week will improve conditions for crops that have been able to flower multiple times amid ample rain, MDA Weather Services in Gaithersburg, Maryland, said yesterday. Soil moisture will also gain in Colombia, the second-biggest producer, the forecaster said.
Brazil may collect a record crop in 2014 after “perfect” weather, Sao Paulo-based Somar Meteorologia said yesterday. The Colombian Coffee Growers Federation estimates that farmers may reap the biggest harvest since 2007. Global production is set to exceed demand for a fourth straight season, according to the U.S. Department of Agriculture. The glut is helping to cut costs for Starbucks Corp. (SBUX) and Kraft Foods Group as coffee futures tumbled 26 percent in 2013.
“All these flowerings taking place in Brazil are leading traders to think that there’s going to be more production than initially thought,” James Cordier, the founder of Optionsellers.com in Tampa, Florida, said in a telephone interview. “The country has a lot of coffee left from last year, and they have to move it to make space for the new supplies. Colombian output is also definitely on the rebound.”
Arabica coffee for delivery in December fell 0.6 percent to settle at $1.0695 a pound at 2 p.m. on ICE Futures U.S. in New York, after touching $1.066, the lowest since March 2009. Prices fell for 11 straight sessions, the longest slump since at least 1972.
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 a five-year high of 30.53 million bags, the USDA predicts.
Lower costs have helped increase margins for Waterbury, Vermont-based Green Mountain Coffee Roasters Inc. (GMCR), Frances Rathke, the chief financial officer, said on a call with investors and analysts on Sept. 10. About 38 percent of the cost for producing the company’s single-serving coffee K-cups come from the commodity, he said. Starbucks cut prices for some of its packaged coffees sold in U.S. supermarket and retail stores in May.
Prices are heading for the third straight annual decline, the longest slump since 1993. Americans are less interested in buying coffee as the number of alternative options has increased, according to Ross Colbert, a global beverage strategist at Rabobank International in New York.
“We’re seeing double-digit growth rates in energy drinks and energy shots,” Colbert said. “This is probably taking consumers away from coffee.”
The “recent favorable weather conditions” prompted Goldman Sachs Group Inc. to lower its price outlook by 7.7 percent, analysts said in an Oct. 18 report. The commodity will be at $1.20 in three, six and 12 months, down from a previous forecast of $1.30, the bank said.
Futures may slump to $1 in the next month, Cordier of Optionsellers.com said. That would be the lowest since August 2006.
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