Bean Buildup Sends Coffee to Nine-Week Low

Arabica-coffee futures fell to their lowest price in nearly nine weeks, as a buildup of the beans at exchange-certified warehouses overshadowed concerns about a plant-disease outbreak in Central America.

Coffee for delivery in March on the ICE Futures U.S. exchange fell 0.8% to $1.3695 a pound, the lowest front-month settlement since Dec. 18. The contract ended 2.9% lower for the week.

Stockpiles of arabica coffee in ICE-certified warehouses totaled 2,669,873 60-kilogram bags as of Friday, up nearly 71% from a year earlier.

The increased supply is a sign of weak demand for this variety of coffee. In times of scarcity, coffee roasters can draw on stockpiles to meet demand.

A record crop from top grower Brazil last season and analysts' and traders' expectations for another large crop this season also are pressuring prices. The country supplies about a third of the world's coffee.

"Everyone is still focusing on Brazil for now," said Chris Narayanan, head of agricultural research at Société Générale GLE.FR -1.36% .

The supply buildup eclipsed news of the spread of roya, a plant-eating fungus, in Central America, which is known for its handpicked gourmet beans. The fungal disease is expected to clip output in a region that produces 10% of the world's coffee.

Government forecasters in Honduras and Guatemala, Central America's top two arabica producers, expect a more than 10% drop in coffee output due to the disease.

Costa Rica's coffee agency, Icafe, said output in the 2012-13 season will likely be 1.65 million bags this season, down 6% from the 2011-12 season, due to the outbreak of roya.

"It's very worrying," said Ricardo Hernández, who grows arabica coffee on the steep slopes of Costa Rica's central highlands. "If it's not managed, it could bring serious consequences for production."

Arabica-coffee prices will likely bottom out in the first half of the year, Rabobank said in a note this past week, as the effects of the roya outbreak will be felt more strongly in the next coffee season, which starts on Oct. 1. Still, the bank said the oversupply of arabica coffee is going to weigh on prices in the near term.

Brazilian farmers still are holding out for higher prices, exporters have said.

"The producer is crying because the market is falling a lot," said Thiago Cazarini, a coffee broker based in Varginha, Brazil. He said bidders are asking for even lower prices, but producers won't budge. "We are still chasing our tails," he said.