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Coffee drips to 2-year low


By Alexandra Wexler
The Wall Street Journal

June 18, 2012

A worker selects beans at a farm east of São Paulo.
Photo: Courtesy of Reuters via WSJ
Arabica coffee futures fell to a fresh two-year intraday low Monday as the market continues to retreat in the face of a projected record harvest from top producer Brazil.

ICE coffee futures have tumbled 15% over the last month as analysts have predicted a Brazilian crop as big as 60 million 132-pound bags.

Rains have slowed the harvesting of beans and delayed confirmation of the crop's size. However, hedge funds and other speculators continue to bet on a glut of supply from Brazil.

"Everybody seems to be in love with the Brazil crop," said Jack Scoville, vice president at Price Futures Group. "They just keep selling because it keeps working."

In the week ending June 12, speculative investors in arabica added 770 short positions, or bets that prices would fall, making speculators net-short by 14,601 positions, according to the Commodity Futures Trading Commission's Commitment of Traders Report.

"Certainly, we cannot really take stock in what the Brazilian coffee crop will measure out to until perhaps mid-July when we get most of it [off the tree]," said Hector Galvan, senior analyst at R.J. O'Brien Futures.

"If by…mid-July we don't see the numbers that we have seen projected, I could easily see coffee back to the $1.80 mark, if not higher," he added.

Demand also will be a key factor in a potential recovery for futures. After arabica prices on ICE hit a 14-year high of $3.0625 a pound last May, many coffee roasters began to blend their arabica with cheaper, more bitter-tasting robusta beans.

"Now the question is if they are going to come back to arabica," said Marcio Bernardo, an analyst at brokerage Newedge.

Front-month arabica for July delivery settled 0.3% lower at $1.4955 a pound Monday, after touching an intraday low of $1.4820 a pound, a price last seen on June 15, 2010.

Front-month arabica futures on ICE have fallen 34% so far this year.

Uncertainty over the macroeconomic situation in Europe, which could affect overall demand for coffee, also is weighing on the downtrodden market.

"The sovereign-debt crisis will continue to worry the market for a long time yet, which could prevent any significant increases in commodity prices," Commerzbank said in a note.
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Write to Alexandra Wexler at Alexandra.Wexler@wsj.com

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