Coffee Prices Rally 7.8 percent

Coffee prices rallied 7.8 percent from a nine-month low in October as the heaviest rains in two decades damaged Central American plantations, Colombia reported a 19 percent drop in output last month, while exports slowed from Brazil, the world’s top grower. The London-based International Coffee Organization already expects production of arabica, the most-consumed variety, to decline 3.7 percent this year.

Global coffee production in the year ending Sept. 30 will drop about 4 percent to 127.4 million 60-kilogram (132-pound) bags from a year earlier, the ICO said in a report Nov. 10. It had previously forecast 129.5 million bags and now anticipates declines in India, Indonesia, Vietnam, Brazil, El Salvador, Guatemala and Mexico. About 80.11 million bags will be arabica and the rest robusta, a lower grade used in instant coffee.

Commodity Coffee’s biggest slump in three years may be ending as weather damages crops from Colombia to Indonesia, reducing U.S. inventories to the lowest since 2000 just as Kraft Foods Inc. and J.M. Smucker Co. cut prices.

Brazilian coffee exports fell to 3.09 million bags last month, from 3.49 million a year earlier, according to data from the nation’s Green Coffee Exporters’ Council, known as Cecafe. Shipments may drop to 3 million bags this month, compared with 3.18 million, Flavour Coffee, a Rio de Janeiro-based broker, said in a report Nov. 17.

Stockpiles in warehouses monitored by ICE Futures U.S. fell 16 percent since December, declining for a fourth year, exchange data show. Arabica-coffee futures, already poised for the highest annual average price on record, may rise 14 percent to $2.71 a pound by March, according to the average estimate of 13 traders.

Arabica coffee futures jumped 74 percent since the end of 2009 on ICE Futures U.S. in New York, second only to the 96 percent rally in silver among 24 commodities tracked by the S&P GSCI Index, which gained 23 percent. The MSCI All-Country World Index of equities fell 4.2 percent in the period, while Treasuries rose 16 percent, Bank of America Corp. indexes show.

Coffee Output Cut

J.M. Smucker, based in Orville, Ohio, cut prices of Folgers, the best-selling U.S. retail coffee, by 6 percent on Aug. 16. It was the first reduction after four increases totaling 38 percent in the year through May. Kraft (KFT), based in Northfield, Illinois, followed a week later with lower prices for its Maxwell House brand.

Largest Coffee Exporter

Drier-than-normal weather in Brazil from April to early October will curb gains in the harvest that starts in May, according to Somar Meteorologia. Marco Antonio dos Santos, an agronomist at the Sao Paulo-based weather forecaster, cut his forecast for the nation’s crop to 55 million bags from 58 million in a report Nov. 1. Cooxupe, a growers’ cooperative and Brazil’s largest exporter, said Nov. 17 its output will be 15 percent smaller than during the previous on-cycle crop because of dry weather.

Even a smaller-than-expected Brazilian crop should be enough to cap the rally in prices in the second quarter. Arabica will decline to $1.95 a pound by May, after peaking in March, according to the average estimate in the Bloomberg survey. Prices are still 23 percent lower than the 14-year high of $3.089 reached May 3 on speculation that slowing growth will erode demand for raw materials and as robusta exports surged from Vietnam, the world’s second-biggest coffee producer.

“The dream of $3 per pound again seems to be just that, a dream,” said Rodrigo Costa, a director at Belo Horizonte, Brazil-based Tangara Importadora e Exportadora SA, an exporter.

World coffee demand fell 2.6 percent in 2009, the most in 16 years, as economies grappled with the worst global recession since World War II, U.S. Department of Agriculture data show.

Since then, Costa Rica trimmed its harvest forecast by 1.5 percent after getting as much as 120 percent of normal rainfall in October, according to the country’s National Meteorological Institute. Colombia’s National Federation of Coffee Growers cut its 2011 crop estimate by 5.9 percent on Nov. 21 because of wet weather, after reducing its 2012 forecast on Nov. 4 by 23 percent. Producers also cut their estimates in El Salvador and Guatemala.

Rainfall in Brazil was as much as 20 percent below normal from April to September and damaged trees, Somar’s dos Santos said. The lack of moisture may limit growth, Kona Haque, an analyst at Macquarie Group Ltd. in London, wrote in a report Nov. 3.

Category: arabica coffee futures, brazilian coffee exports, Coffee, coffee commodity, coffee forecast, global coffee production, world coffee demand