Arabica-Coffee Futures Drop to Lowest Level Since July 2009

Alexandra Wexler

  NEW YORK--Arabica-coffee futures tumbled to their lowest settlement in more

than four years Tuesday as traders worried about massive supplies.

  Earlier this week, the Green Coffee Association, an industry group, said U.S.

stocks of unroasted coffee rose 2.4% to 5.56 million 60-kilogram (132-pound)

bags during the month ended Aug. 31. That's the most coffee in domestic

warehouses since July 2009, the last time prices traded at current levels.

  In addition, forecasts for rains this week in growing areas of Brazil, the

source of one-third of the world's coffee, are expected to nourish the arabica

crop that farmers will start picking in mid-2014.

  Arabica coffee for December delivery on the ICE Futures U.S. exchange ended

3.6% lower at $1.1495 a pound, the lowest settlement since July 13, 2009.

  Rains in Brazil are negative for prices because they "will create good

flowering for the next crop," said Jack Scoville, vice president at Price

Futures Group in Chicago.

  Coffee trees flower before the fruit containing the coffee beans emerges, and

a strong flowering is usually indicative of the size and quality of the

harvest.

  Expectations for a record 'off-year' coffee harvest during the current season

in Brazil's two-year crop cycle have also weighed on the market for months.

  "The current crop harvest has proceeded well (and) most traders are still

bearish longer-term on big world supplies," Mr. Scoville said.

  Traders and analysts said that the market's failure to rise much above the

key-technical and psychological level of $1.20 a pound, despite testing it

during the last four sessions, also prompted speculative investors to add bets

that prices would fall further.

  "When we were unable to break above that level, the market just kind of

folded due to the abundant supplies in the short term," said Boyd Cruel, senior

analyst at Vision Financial Markets in Chicago.

  Last week, Societe Generale reduced its forecast for arabica coffee during

the fourth quarter of 2013, "due to the fourth consecutive season of arabica

production exceeding demand and a continuing global surplus," the bank said in

a note. For the last three months of the year, Societe Generale projects that

arabica prices will average about $1.15 a pound.

  "We're still trying to find a harvest low in here," said Fain Shaffer,

president of Infinity Trading Corp., an Indianapolis-based brokerage. He

expects that prices could trade as low as $1 a pound, a level last seen in

September 2006, before that happens.

  Orange-juice futures plunged Tuesday as investors liquidated bets that prices

would rise after a flurry of storm systems in the Atlantic Ocean and Caribbean

Sea weakened or were forecast to miss top U.S. citrus-grower Florida.

  "It's the hurricane buyers from last week bailing out of their positions,"

said James Cordier, president of Tampa, Fla.-based brokerage Liberty Trading

Group. "We've got a bit of a vacuum beneath the market."

  Orange juice for delivery in November on the ICE Futures U.S. exchange closed

6% lower at $1.2755 a pound, the lowest settlement since March 7 and the

biggest one-day price movement since March 8.

  Traders had been placing bets that a hurricane might damage the groves and

lower output in Florida, the source of more than two-thirds of U.S. orange

output. But with the peak of hurricane season, which runs from June 1 to Nov.

30, behind the market, traders are pulling out.

  "This is what happens when we have specs who buy the market based on weather

that doesn't develop," Mr. Cordier said.

  Raw-sugar on ICE also eased, settling 0.9% lower at 16.79 cents a pound.

Cocoa pulled back from a fresh  one-year high of $2,648 a ton in intraday

trade, to end down 0.8% at $2,614 a ton.

  Cotton futures bucked the general trend in soft commodities to close up 0.5%

at 84.44 cents a pound, as the development of the domestic crop continued to

lag during the week ended Sept. 15, and the its condition worsened slightly,

according to a report from the U.S. Department of Agriculture.