Coffee has third straight annual drop, longest slump in 20 years

Staff Writer
Columbus CEO

(c) 2013, Bloomberg News.

NEW YORK — Coffee futures fell, capping the longest run of annual declines since 1993, on concern that a global glut will increase as crop conditions improve in Brazil, the world's biggest producer and exporter of arabica beans.

Widespread rain in the next several days in Brazil's Sao Paulo and Parana states will aid plants by increasing soil moisture, MDA Weather Services in Gaithersburg, Md., said Monday in a report. The nation's crop will reach 49.2 million bags, higher than a previous estimate of 47.5 million, Conab, the government's forecasting agency, said on Dec. 20.

Global production is set to exceed demand for the fourth straight season, pushing inventories to a five-year high, according to the U.S. Department of Agriculture. The glut is helping to cut costs for Starbucks and Green Mountain Coffee Roasters.

"There's just too much coffee around," Michael Smith, the president of T&K Futures & Options in Port St. Lucie, Fla., said in a telephone interview. "A better crop outlook in Brazil is certainly pushing prices lower."

Arabica coffee for March delivery fell 3.5 percent to settle at $1.107 a pound at 2 p.m. on ICE Futures U.S. in New York, the biggest drop for a most-active contract since Nov. 22. This year, the price tumbled 23 percent, the third straight annual decline. The commodity plunged 54 percent since the end of 2010.

Global production, including the robusta variety that accounts for about 42 percent of supply, will exceed demand by 6.04 million bags in the 2013-2014 season, compared with a surplus of 11.06 million a year earlier, the USDA said this month. Inventories will reach 36.33 million bags, the highest since the 2008-2009 season. A bag weighs 60 kilograms, or 132 pounds.

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

Robusta futures for March delivery fell 0.6 percent to $1,683 a metric ton on NYSE Liffe in London. This year, the price dropped 13 percent after climbing 6.3 percent in 2012. Vietnam is the biggest producer, followed by Brazil.

The arabica premium to robusta averaged 42.41 cents a pound this year, down from 84.16 cents in 2012.

On Dec. 9, the premium fell to 27.95 cents, the lowest since Oct. 7, 2008.