Goldman Cuts Coffee Price Forecast as Inventories at 5-Year High

Goldman Sachs Group Inc. cut its price forecast for arabica coffee futures traded in New York, citing a surplus that will take stockpiles to a five-year high at the end of the 2013-14 season.

Arabica coffee will be at $1.30 a pound on the ICE Futures U.S. exchange in three, six and 12 months, the bank said in a report e-mailed today. That’s down from a previous forecast of $1.45 a pound. The beans fell 12 percent this year to $1.263 a pound by 4:26 a.m. in New York.

Global coffee production will exceed demand by 4.46 million bags in 2013-14, from a 10 million-bag surplus a year earlier, according to the U.S. Department of Agriculture. Inventories will reach a five-year high of 30.53 million bags, the USDA predicts. A bag of coffee weighs 132 pounds.

“The expected 2013-14 surplus that would bring stocks to their highest level in five years is leading us to lower once again our three- to 12-month forecasts,” Damien Courvalin, an analyst at the bank, wrote in the report. “Potential for prices to rebound from their current levels include weather risks in Brazil, the potential for further cuts to Central American production and short covering flows of near-record short net speculative positions.”

Arabica coffee gained 2.8 percent last week as a forecast for a cold front that may bring freezing temperatures to some coffee areas in Brazil, the world’s top producer, resulted in speculators closing bets on lower prices. Some coffee growing areas may get freezing temperatures today and tomorrow, forecaster Somar Meteorologia said on July 18.

Net-Short Positions

Large and small speculators excluding index funds reduced their net-short positions, or bets on lower prices, on arabica coffee to 28,452 contracts in the week ended July 16, data from the U.S. Commodity Futures Trading Commission compiled by Bloomberg showed. That’s down from a net-short position of 32,941 lots a week earlier.

Prices of raw sugar traded in New York will also be lower than previously forecast, the bank said, citing a record crop in Brazil’s center south, the main growing region of the world’s leading producer, and a “promising start” to the monsoon in second-ranking India.

Sugar will be at 16.50 cents a pound on ICE in three months, down from a previous forecast of 17.50 cents a pounds. Prices will gain to 17.50 cents a pound in six months and to 19 cents a pound in 12 months, the bank said, adding that it sees “downside” to its medium-term forecast. Raw sugar was down 16 percent this year to 16.39 cents a pound.

Potential support to prices could come either from rain in Brazil or weather and, or production disappointments in India later this year, according to the Goldman Sachs report.

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