Coffee Heads for Longest Slump Since 1972 on Brazil Crop Outlook

October 29, 2013 Leave a comment

Coffee Heads for Longest Slump Since 1972 on Brazil Crop Outlook

Coffee futures headed for the worst rout in more than four decades as wet weather boosted the outlook for crops 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 $1.069 a pound at 9:22 a.m. on ICE Futures U.S. in New York, after touching $1.066, the lowest since March 2009. A decline today would be the 11th straight, the longest slump since at least 1972.

Global Surplus

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.

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

Filed under Macro Trends

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