By Alexandra Wexler
August 17, 2012
NEW YORK—Arabica coffee futures sank
3.6% this past week, at one point settling at a nearly eight-week low as
traders anticipated a glut of the beans from Brazil.
Unseasonable rains in the top
coffee-producing country earlier in the season prevented trucks and workers
from getting into the fields, straining supplies and pushing arabica futures
prices up 20% from mid-June to mid-July. Arabica, prized for its mild flavor,
is often used in gourmet coffee blends.
But after a recent bout of dry
weather, the South American nation's harvest is nearing conclusion, knocking
the wind out of the futures market. Brazil's 2012-13 coffee harvest was 80%
complete as of Aug. 9, Brazilian agricultural consultancy Safras & Mercado
said.
"The thing that was holding the
market up was weather, which really isn't there anymore," said Hector
Galvan, senior analyst at R.J. O'Brien in Chicago.
With concerns about short-term
supply tightness easing, front-month arabica futures declined for eight
straight sessions before ticking higher Friday in line with a surge in
equities. The front-month contract for September delivery settled 0.9% higher
at $1.6030 a pound on the ICE Futures U.S. exchange.
A record crop of Brazilian arabica
beans should hit the market in coming weeks, analysts and traders said.
"We could start to see some
increase in the offers from Brazil," said Jack Scoville, vice president at
Price Futures Group in Chicago.
But many traders are pointing to a
floor in the market around $1.50 a pound and are looking for prices to rise
after touching that level, as the actual quality of the crop comes into better
focus. The front-month contract tested $1.50 in mid-June but quickly recovered.
The last time arabica futures traded consistently below that level was in the
first half of 2010.
Joaquim Ferreira Leite, export
director at Cooxupe, Brazil's largest coffee cooperative, said about 30% of the
coffee in some growing areas was "lost in terms of quality" due to
the rains. The cooperative intends to wait until the end of the harvest in
September before exporting any coffee in order to evaluate the supply of
top-quality beans.
Rain can knock coffee cherries, the
fruit surrounding the beans, off trees and leave them to rot on the moist
ground. The fruit's deterioration makes the coffee taste bitter when brewed.
"Producer selling in Brazil has
been muted as has physical activity at other arabica origins as well-funded
growers are not keen to sell into falling markets," Rabobank said in a
note.
Marcio Bernardo, an analyst at
brokerage Newedge in New York, said a lack of aggressive selling from producers
in origin countries is starting to support the market. "They're waiting
for better prices," he said.
Some market participants said they
expect the final damage results to push arabica coffee futures higher once
more.
"I see no reason for prices to
have tumbled," given the questions about quality, said Guilherme Braga,
head of Brazil's coffee exporter council CeCafe. "Harvesting is holding up
well," he said, but damage to the beans remains the same.
"I would open a long position
around these prices," said Juliano Ferreira, a broker at ICAP Futures in
São Paulo, referring to a bet that prices will rise. The quality of the coffee
coming in is "really bad," he said.
---