Coffee Tumbles to Two-Year Low as Brazil Crop Seen at Record

  • Arabica production may increase 24% to 39.9 million bags
  • Robusta prices in London slide to more than five-year low

Coffee prices fell in New York after a forecast for output in Brazil, the world’s top producer and exporter, to rise by as much as 20 percent to a record in 2016 as rain boosts crops and expands plantings.

Growers may reap between 49.1 million and 51.9 million bags, up from 43.2 million bags in 2015, the Agriculture Ministry’s crop-forecasting agency, known as Conab, said Wednesday in its first forecast for the next harvest. Arabica production may increase as much as 24 percent while robusta output is seen rising up to 8 percent. Conab’s projections are below estimates by Rabobank International and Ecom Agroindustrial Corp.of 58 million and 60 million, respectively.

Arabica coffee for March delivery fell 3.5 percent to settle at $1.116 a pound on ICE Futures U.S. in New York after earlier touching $1.1105, the lowest for a most-active contract since Dec. 31, 2013. Robusta for March delivery slid as much as 3.8 percent to $1,359 a metric ton on ICE Futures Europe in London, the cheapest since June 2010.

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

This season marks the higher-yielding half of a biennial cycle in Brazil. Crops, which were hurt by the worst drought in decades in 2014, have benefited from widespread rain.

"All signs point to a likely supply-demand surplus for the 2016-17 season, and comfortable ending stocks once this large crop gets under way" by the second quarter, Julio Sera, senior risk-management consultant for INTL FCStone Inc., said by telephone from Miami.

Conab said robusta yields should recover in the southeastern state of Espirito Santo, where production was curbed by high temperatures last year.

"Favorable weather conditions in the main arabica-producing regions, combined with the positive yield cycle, favor crops and explain productivity gains in most states,” Conab said in a statement.

Traders anticipate more losses for the commodity could be in store. March puts at $1.10 were the most traded option against the contract, followed by puts at $1, data on Bloomberg show.

Weak Currency

Brazil’s coffee harvest, which set a record of 50.8 million bags in 2012, starts in May. A bag weighs 60 kilograms, or 132 pounds.

Brazil’s green coffee exports rose 1.2 percent last year to a record 33.3 million bags, boosted by the weaker real. Shipments should “at least” repeat last year’s level in 2016, Cecafe, an exporters group, said Tuesday. Brazil accounts for about one-third of global coffee exports.

“We expect a good crop," Nelson Carvalhaes, the head of Cecafe, told journalists in Sao Paulo. “Brazil’s supplies will be enough to meet domestic and export demand this year.”

Before it's here, it's on the Bloomberg Terminal.