Coffee Caps Biggest Drop Since 2010 on Forecast for Brazil RainsMarvin G. Perez
Coffee futures in New York yesterday capped the biggest two-day decline since 2010 as rains aid Brazilian crops damaged by a drought that boosted prices almost 60 percent this year.
In the next five days, a cold front will bring more precipitation to Brazil’s Parana and Sao Paulo, with rain expected by the weekend in Minas Gerais, the top producing state, MDA Weather Services said. After the worst dry spell in decades hampered crops in January and February, more than 6.9 inches (17.5 centimeters) of rain has fallen in some growing areas this month, or about 44 percent above normal, according to Brad Harvey, a meteorologist with MDA.
In 2013, futures posted the longest stretch of annual declines in two decades as the U.S. government forecast global supplies would be in surplus for a fourth season amid a bumper crop in Brazil, the top grower and exporter. The unexpected dry spell threatened production, and sent coffee to the highest in two years on March 12. Even as drought conditions ease, prices are still 30 percent higher than a year earlier, signaling increasing bean costs for Keurig Green Mountain Inc. and J.M. Smucker Co., maker of Folgers, the best-selling U.S. brand.
“The market is trading on the forecast for rain,” Boyd Cruel, a senior analyst for Vision Financial Markets in Chicago, said in a telephone interview. “The rally was overdone: way too fast, too soon. We’ve had surpluses, and there’s still abundant supplies to meet demand.”
Arabica coffee for May delivery tumbled 6.1 percent to settle at $1.7415 a pound yesterday on ICE Futures in New York, capping a 9.1 percent two-session drop.
Prices have declined 17 percent since reaching a two-year high of $2.0975 last week. The commodity was the worst performer yesterday among the 24 raw materials tracked by the Standard & Poor’s GSCI Spot Index, which slid as much as 0.7 percent.
Societe Generale is still forecasting a coffee-supply surplus, with production expected to top demand by 1.5 million bags, even as Brazil’s arabica crop drops by 10 percent from a year earlier, the bank said in a report March 19. A bag weighs 60 kilograms, or 132 pounds.
While prices could reach $1.50, the outlook remains volatile because “weather forecasts can change,” Cruel of Vision Financial said. “If the rains expected for the weekend don’t materialize, this market could be up again big time next week,” he said.
The premium that arabica beans command over the robusta variety traded in London has more than doubled this year, according to data compiled by Bloomberg.
Robusta-coffee futures for May delivery dropped 2.5 percent to $2,037 a metric ton on London’s NYSE Liffe, the sixth straight decline, the longest slide since October.