Growers Cut Back on Coffee and the Bulls Start Waking Up – WSJ.com

Growers Cut Back on Coffee and the Bulls Start Waking Up

By LESLIE JOSEPHS And ALEXANDRA WEXLER

[image]Reuters

Arabica prices on the ICE Futures U.S. exchange fell to their lowest levels since September 2009 on Wednesday. Above, a worker rakes coffee beans to dry during a harvest in Brazil.

Some investors smell opportunity in the biggest coffee-market bust in more than a decade.

Coffee-bean prices have fallen 54% in the past two years. The drop has been so steep that longtime coffee farmers are considering other uses for their land, in a move that some investors are counting on to reduce a coffee glut and drive a price rebound.

Prices for arabica coffee on the ICE Futures U.S. exchange fell to their lowest levels since September 2009 on Wednesday. These prices, which reflect roasters’ wholesale coffee costs, settled at $1.2275 a pound, down 3.9% on the day, the biggest one-day drop since April 23. Retail prices have declined less sharply.

image
Reuters

Brazil’s government expects this season’s crop to be near a record. A worker displays beans at a factory there.

Benchmark arabica coffee prices are approaching the cost of production in top grower Brazil, and already have fallen below that point in other countries including Colombia, growers say.

“It is impossible to go on,” says Joaquim Libânio Ferreira Leite. He said his family has grown arabica coffee for seven generations in Brazil, but now is converting some land to cattle pastures. “No money, no coffee.”

Growers are nixing the planting of new trees and rationing the use of fertilizer. Mr. Leite, who is the export director of Brazil’s biggest coffee cooperative, which grows about 10% of the country’s crop, expects other co-op members to follow his lead.

“There is not one producer that can make money at current prices,” said Mark Nucera, president of M.A. Nucera, an Atlanta consulting firm that advises investors on commodities trades. “The prices are so terrible, you would expect less production” next season.

Mr. Nucera recently placed bets that arabica-coffee prices would rise. He expects the market to begin moving higher around October.

The tumble in prices is the product of two years of swelling coffee production in Brazil. Growers in the South American nation invested heavily in their farms as prices rallied to a 14-year high in 2011, expanding coffee-growing lands and planting high-yielding tree varieties.

When prices slid, they held on to some of their beans in hopes of pushing prices back up. But the bounce never materialized. As a result, farmers now have even more to sell as they start picking this season’s crop, which Brazil’s government expects to be near a record.

Fain Shaffer, president of Infinity Trading Group, a brokerage in Medford, Ore., recently bought arabica futures when they were hovering around three-year lows. He plans to continue placing bullish bets into July. That is when he expects the market to touch its seasonal low, with Brazil’s harvest in full swing.

“They’ll be spending less on inputs,” Mr. Shaffer said of the farmers. “I think we will see supplies tighten.”

He projects that the market will fall as low as $1.20 a pound over the short-term, but in 60 to 90 days, he expects prices to be higher as the market turns its focus to next season’s crop.

To be sure, other investors are betting that the slide in prices will continue. Bill Collard, an investor and president of the Futures Management Group, a brokerage in Fern Park, Fla., placed bets that prices would continue to fall, citing the massive supplies in Brazil and a tepid global economy that could muffle growth in consumption. “It’s been a very profitable trade,” he said. “It’s been straight down.”

Levels hit this month “will be looked upon by the industry as a legendary low,” said Hackett Financial Advisors President Shawn Hackett, who has been trading coffee for about a decade.

Prices of robusta coffee, the more bitter, easier-to-grow variety of bean often used in instant coffee, also have slid due to large supplies from Vietnam, the world’s biggest grower of the variety. Robusta on the NYSE Euronext NYX +0.37% settled at $1,780 a metric ton Wednesday, the lowest point in 17 months.

Big coffee-growing countries are helping farmers ride out the bust through direct subsidies and free farming supplies, which ultimately could smooth out price volatility.

Under pressure from growers’ groups and regional governments, Brazilian officials recently raised the minimum price for coffee to 307 Brazilian reais ($142) per 60-kilogram (132-pound) bag, which translates to $1.0794 a pound, for the first time in four years.

Analysts say additional financing also could allow growers to be more disciplined when selling their crop, which would push prices higher. “It takes a little bit of the pressure off from a complete flooding of the market,” said Kona Haque, head of agricultural research at Macquarie Bank MQG.AU -1.09% .

Write to Leslie Josephs at leslie.josephs and Alexandra Wexler at alexandra.wexler

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Coffee Exports From Indonesia Seen Slumping to Two-Year Low – Bloomberg

Coffee bean shipments from Indonesia, the third-largest robusta grower, are set to slump to the lowest level in two years as domestic processors boost purchases and the harvest drops because of rains.

Exports may fall 14 percent to 385,000 metric tons (6.42 million bags) from a year earlier, according to the median of estimates from seven exporters and a processor compiled by Bloomberg. That’s the smallest since 2011, according to data from the Central Statistics Agency. The crop may slide 10 percent to 595,000 tons (9.92 million bags), the survey showed.

Enlarge image Coffee Shipments From Indonesia Seen Plunging to Two-Year Low

Robusta coffee berries are collected in a basket at a coffee plantation in Tanggamus, Lampung Province, Indonesia. Robusta futures fell 12 percent in the past year and traded at $1,858 a ton on NYSE Liffe in London on June 7. Photographer: Dimas Ardian/Bloomberg

Indonesia's Trade Minister on Economy 2:25

June 10 (Source: Bloomberg) — Indonesia’s Trade Minister Gita Wirjawan talks about the government’s plan to pass a compensation package for the nation’s poor, the outlook for the economy and the prospects for foreign investments into the country. He spoke at the World Economic Forum on East Asia in Naypyidaw, Myanmar, on June 7 with Bloomberg Television’s Haslinda Amin. (Source: Bloomberg)

Enlarge image Coffee Shipments From Indonesia Seen Plunging to Two-Year Low

A worker spreads out harvested Robusta coffee berries to sun dry at a coffee plantation in Tanggamus, Lampung Province, Indonesia. Photographer: Dimas Ardian/Bloomberg

Fewer cargoes from Indonesia may slow the decline in prices of the variety used in instant drinks by Nestle SA and Kraft Foods Group Inc. Futures fell 17 percent from a five-month high in March amid a surge in supply from Vietnam and Brazil, the top growers. The crop in Vietnam may jump 13 percent as global coffee output outpaces demand for a second year in 2013-2014, says Volcafe, the Winterthur, Switzerland-based unit of commodities trader ED&F Man Holdings Ltd.

“Production will drop because of the weather and after we had such a big harvest last year,” said Sumita, head of Lampung chapter at the Association of Indonesian Coffee Exporters and Industry. “Local consumption is increasing and everyone is competing for beans,” Sumita, who only uses one name, said in an interview in Bandar Lampung on May 28.

Robusta futures fell 11 percent in the past year and traded at $1,837 a ton as of 9:03 a.m. on NYSE Liffe in London. Prices of the milder-tasting arabica coffee used by Starbucks Corp. dropped 19 percent to $1.263 a pound in New York.

Weaker Trees

In the higher areas of Indonesia’s southern Sumatra, the crop will decline by as much as 50 percent to average 1.5 tons per hectare because of heavy rains, said 63-year-old Sunyoto, who heads a group of 37 farmers. The main harvesting will start in mid-June, one month behind schedule, said Sunyoto, who migrated from Java in 1977 and started planting coffee 30 years ago. A bumper harvest last year weakened trees, he said.

“Big production is not always a good story for us,” said Sunyoto. “Some have to stop farming for a year as the trees need a longer time to grow buds and produce cherries again.”

Production in Indonesia will drop 10 percent to 10.5 million bags in 2013-2014, according to Volcafe. The crop will decline 5.5 percent to 9.165 million bags in 2013-2014, the U.S. Department of Agriculture said in a report dated May 15. A bag weighs 60 kilograms (132 pounds).

Local Demand

International Coffee Organization data showing higher shipments may mean output is more than estimated, said Andrea Thompson, the Belfast, Northern Ireland-based head of research and analysis at CoffeeNetwork, a unit of broker INTL FCStone Inc. Shipments in April were 600,000 bags, up from 561,448 bags a year earlier, according to the ICO.

“There are still some bullish reports about Indonesia,” said Thompson. “If you look at the ICO exports, the flow from Indonesia is strong. The signals are there that output has been underestimated.”

Demand for the crop is increasing from local processors. Consumption may total 2.58 million bags in 2013-2014, 53 percent more than three years ago, according to USDA data.

The industry is outbidding exporters for supplies, said Sumita from the association. Local processors were ready to buy robusta beans at 21,000 rupiah per kilogram ($2,109 a ton) on May 28, he said. Shippers were offering about 19,000 rupiah, said Sunyoto, who receives a daily text-message with prices from a foreign exporter on his mobile phone.

Daily Arrivals

Rains have delayed deliveries to Lampung warehouses, boosting the premium over international prices. Buyers were offering $135 a ton above NYSE Liffe for June/July shipments compared with $50 in April at the start of the crop year, said Moelyono Soesilo, a marketing and purchasing manager at PT Taman Delta Indonesia. Daily arrivals were 800 tons in the third week of May, compared with more than 1,000 tons year earlier, said Sumita from the association.

“Exports will depend on prices,” said Sumita. “We won’t curb shipments if prices are good, but we can see that supply pressure is very high from Vietnam and Brazil,” he said. About $2,200 a ton was the “ideal price” for exporters and farmers, he said. That’s 18 percent above the price on June 7.

To contact the reporter on this story: Yoga Rusmana in Jakarta at yrusmana

To contact the editor responsible for this story: James Poole at jpoole4

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Coffee Drops as Weaker Real Prompts Brazilian Sales; Sugar Falls – Bloomberg

Arabica coffee fell for a second day in New York as the harvest advanced in Brazil, the world’s leading producer, and a weaker local currency prompted growers to sell more in the futures market. Raw sugar declined.

Dry weather allowed growers to accelerate pickings in Brazil, Rio de Janeiro-based broker Flavour Coffee said in a report e-mailed on June 6. Dryness came after “abnormal rain” in the beginning of this month, according to Sao Paulo-based weather forecaster Somar Meteorologia. The Brazilian real slid 6.2 percent against the dollar over the past month, making sales priced in the U.S. currency more attractive.

“A common theme aligning coffee and sugar is not just heavy surpluses, but also the start of the large Brazilian harvests and more recently, the weakening Brazilian currency,” Kona Haque, an analyst at Macquarie Group Ltd. in London, said in a report e-mailed today. A weaker real “may encourage further selling in coming weeks,” she said.

Arabica coffee for July delivery fell 0.3 percent to $1.266 a pound by 7:12 a.m. on ICE Futures U.S. in New York. The price slid 1.9 percent in the previous trading session. Robusta coffee for delivery in the same month retreated 0.2 percent to $1,844 a metric ton in London.

Brazil is harvesting its 2013-14 crop and production will be a record for a year in which trees enter the lower-yielding half of a two-year cycle, the government estimates. Output will be 48.6 million bags, crop-forecasting agency known as Conab said on May 14. A bag of coffee usually weighs 132 pounds.

Robusta coffee has fallen 9.3 percent in the past month as supplies improved. Prices in Vietnam, the main grower of the variety used in instant drinks and espresso, fell to 39,200 dong ($1.87) a kilogram (2.2 pounds) today, the lowest since Jan. 30, data from the Daklak Trade & Tourism Center on Bloomberg showed.

Robusta Supplies

“In robusta, supplies are improving, with Vietnamese growers likely to be scale-down sellers as Indonesian new crop arrivals start picking up,” Macquarie’s Haque said.

Raw sugar for delivery in July was down 0.1 percent at 16.42 cents a pound in New York. White, or refined, sugar for delivery in August was little changed at $481.30 a ton in London.

Cocoa for July delivery fell 0.4 percent to $2,355 a ton on ICE. Cocoa for delivery in July declined 0.3 percent to 1,559 pounds ($2,423) a ton on NSYE Liffe.

To contact the reporter on this story: Isis Almeida in Ialmeida3

To contact the editor responsible for this story: Claudia Carpenter at Ccarpenter2.

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Coffee Futures Drop to Lowest Since 2009 on Ample Supply

Coffee Futures Drop to Lowest Since 2009 on Ample Supply

Coffee futures fell to the lowest since September 2009 on increasing supplies from Brazil, the world’s largest producer. Sugar and cocoa gained.

Growers in Brazil will harvest a record 57.8 million bags of coffee in the season starting Oct. 1, and global supplies will outpace demand for the second straight year, according to Volcafe, the Winterthur, Switzerland-based unit of commodity trader ED&F Man Holdings Ltd. Futures headed for the biggest monthly drop since October.

“The market is under pressure because we see ample supply from Brazil,” Hernando de la Roche, a senior vice president at INTL FCStone in Miami, said in a telephone interview. “This crop is a huge crop.”

Arabica coffee for July delivery declined 1 percent to $1.263 a pound at 12:22 p.m. on ICE Futures U.S. in New York. Earlier, the price touched $1.252, the lowest for a most-active contract since Sept. 14, 2009.

Through yesterday, the price tumbled 23 percent in the past 12 months, the most among 24 raw materials in the Standard & Poor’s GSCI Spot Index.

A bag weighs 132 pounds (60 kilograms). Brazil is also the top exporter.

Raw-sugar futures for July delivery rose 0.5 percent to 16.75 cents a pound.

Cocoa futures for July delivery rose less than 0.1 percent to settle at $2,211 a metric ton at 11:58 a.m.

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14

To contact the editor responsible for this story: Steve Stroth at sstroth.

[catergory Bloomberg]