Coffee sinks to near one-year low

Supply Outlook Shifts as Weather Conditions in Brazil Support Healthy Harvest

By Tatyana Shumsky

The Wall Street Journal

February 10, 2015

Coffee prices tumbled to the lowest level in nearly a year on Tuesday as investors recalibrated their expectations for supplies amid signs that weather conditions in Brazil are supporting a healthy harvest.

Arabica coffee for March delivery fell 8.20 cents, or 4.9%, to settle at $1.5940 a pound on the ICE Futures U.S. exchange. This was the lowest close since Feb. 18, 2014, and the biggest one-day percentage drop since Nov. 21.

The weather in Brazil has been better than some investors had expected. Intermittent rainfall is keeping coffee trees hydrated and on track for a healthy crop, said James Cordier, president of Liberty Trading Group in Tampa, Fla. Brazil is the source of roughly half of the world’s arabica beans, a type of coffee prized for its mild flavor.

Some investors had been betting on a repeat of 2014, when coffee prices rocketed to 2 ½-year highs as a severe drought crimped Brazil’s bean production and threatened longer-lasting damage to its coffee trees. One of Brazil’s largest coffee cooperatives, Cooxupe, said last week its growers are seeing stunted beans for the 2015 crop because of limited rain in January.

However, Brazil is now “getting showers every day or every other day, which is quite normal for this time of year,” Mr. Cordier said.

“The idea that the coffee crop would be weighed down by dry weather conditions is just incorrect,” he said. “The drought is far behind us, and the trees have recovered quite well.”

In addition, CeCafe, Brazil’s coffee-export association, reported that shipments of unroasted coffee beans rose 11% in January to 2.77 million bags. While the surge was mainly driven by a tripling of sales of robusta coffee, a variety often used in instant-coffee mixes, arabica exports rose 2.3% from a year earlier.

Data for the current crop year show exports are on track for a record, said Rodrigo Costa, director of coffee at Société Générale.

Also Tuesday, cotton prices ended 0.3% higher as investors weighed the U.S. Department of Agriculture’s revised forecasts for the fiber.

The USDA raised its estimate for U.S. exports to 10.7 million bales from 10 million bales previously, as expected, but it also lifted its forecast for a global glut of cotton. The USDA expects global stockpiles for the year ending July 30 to reach 109.8 million bales, up 1.2 million bales from its previous forecast and up 8% from last year.

“The big change was another cut to Chinese consumption,” which the USDA reduced by 1 million bales, said Sharon Johnson, a senior cotton specialist for Wedbush Securities in Atlanta.

Still, much of the increase in global stockpiles is in China’s State Reserves Board warehouses, which aren’t available to foreign mills and only doled out to domestic mills when Beijing deems it necessary, Ms. Johnson said.

Cotton for March delivery ended at 62.51 cents a pound, the highest closing price since Nov. 11.

In other markets, the most actively traded cocoa contract, for May delivery, rose for a sixth straight session, ending the day 0.1% higher at $2,868 a ton. Frozen, concentrated orange juice for March fell 3.5% to $1.3585 a pound, while raw sugar eased 0.7% to 14.71 cents a pound.

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Write to Tatyana Shumsky at tatyana.shumsky@wsj.com