Coffee-Bean Prices Sag as Stockpiles Build
Supply Exceeds Demand, Sending Arabica Coffee to a 33-Month Low; a Market That's 'Just Death Warmed Over'
NEW YORK—Mounting stockpiles of arabica coffee around the world have soured traders' outlook on the commodity, pushing prices down to a 33-month low.
Arabica coffee in 60-kilogram (132-pound) sacks stored in exchange-certified warehouses rose to more than 2.74 million bags Friday, up 6.7% from the start of the year.
Arabica coffee sacks in warehouses are up 6.7% from the start of the year. Above, coffee berries are inspected in Cundinamarca, Colombia.
Beans are also accumulating in Brazil, the source of about one-third of the world's coffee. Growers there have been holding back some of their crop, waiting for higher prices. According to Safras & Mercado, a Brazilian consulting firm, farmers there had sold 71% of their 2012 crop by the end of February, down from 87% at the same point last year.
"There's too much Brazilian [coffee], too much arabica," said Thiago Cazarini, a coffee broker based in Varginha, Brazil. He estimated prices will drop to $1.30-$1.35 a pound.
Arabica coffee for delivery in May on the ICE Futures U.S. exchange fell 2.15 cents, or 1.5%, to $1.375 a pound, the lowest settlement for the active-month contract since June 10, 2010. The thinly traded March-delivery contract lost 2.4 cents, or 1.7%, to end at $1.365 a pound. The front-month contract fell 4.8% for the week.
"The market is just death warmed over," Jack Scoville, a vice president at Price Futures Group, said about futures prices.
The market has been struggling with heavy supplies for some time. Global supplies of coffee in the 2012-13 crop year, which started in October, are expected to outpace demand by 2.2 million bags, largely due to increased output from Colombia, the International Coffee Organization said.
Colombia is the largest producer of mild, washed arabica beans, a variety coveted by gourmet roasters.
Tens of thousands of coffee growers there went on strike for close to two weeks in late February and early March to protest dropping prices, blocking roadways to demand more aid from the government.
The quasigovernmental Colombian Federation of Coffee Growers, which oversees the industry, said Friday it would more than double the subsidy for each 125-kilogram bag of parchment coffee—unroasted coffee with a thin layer of skin on the bean—to 145,000 pesos ($80.44).
The move is expected to spur sales of beans from the country, where production rose 9.5% last month from a year earlier.
"Sales were delayed," said Hernando de la Roche, a senior vice president at brokerage INTL FCStone. "I think [the subsidy] is a factor that [traders] are looking at."
On top of Colombia's bright forecast, Brazil is expected to produce another large harvest following record 50.83 million bags harvested in 2012.
Sterling Smith, a futures specialist at Citigroup , C -0.42% called the oversupply "an anchor on the market."
"There's not a lot of reason to be aggressively buying arabica right now," he said.
—Jeffrey T. Lewis in São Paulo contributed to this article.
