'Supersafra' talk sends coffee price to 4-year low

11:44 UK, 24th Oct 2013

Arabica coffee prices staged some recovery on Thursday, but only after sinking to a fresh four-year low, undermined by expectations of a "supersafra" harvest in Brazil, and a revival in Colombian output too.

Arabica coffee for December stood 0.5% higher at 111.10 cents a pound in early deals in New York, looking for its first rise in eight sessions, but only after hitting 110.40 cents a pound, the lowest for a spot contract since March 2009.

The weakness in values reflects continued expectations of a potential record crop in Brazil in 2014, the top producer, where the term "supersafra" , superharvest, is being used, with ideas that output could reach 60m bags for the first time.

That would represent a rise of 6m bags on the 2013 crop which, at 54m tonnes, was a record for an "off" year in Brazil's cycle of higher and lower production years.

Ideas for Colombia's 2013-14 production have also improved, as rust-resistant trees replanted after an outbreak of the devastating fungus, come onstream.

And arabica values are also being dragged lower by those of robusta coffee beans, which themselves set a three-year low in London on Wednesday, depressed by a bumper harvest in Vietnam, the top producer of the variety.

'We remain bearish'

"The outlook for the next Brazilian crop appears optimistic as the favourable crop weather in Brazil boosted flowering of the crop," Joyce Liu, at broker Phillip Futures, said.

"With a surplus of supplies and expectations of a good crop in Brazil, we remain bearish on arabica coffee."

Commerzbank said: "Favourable weather conditions mean that next year once again expects to see a very good crop in Brazil.

"What is more, the coffee harvest is currently underway in Vietnam, which has caused the robusta price to fall to a three-year low and is likewise weighing on the arabica price."

The bank highlighted that the fall in arabica prices had come despite a recovery in Brazil's real, which has rebounded some 10% against the dollar from multi-year lows reached in August.

That might have been expected to have provoked a rise, in dollar terms, of assets such as arabica coffee in which Brazil is a major player.

Sales deferred

As a further pressure on values, investors are aware that Brazilian growers have slowed sales of beans, thanks to the low prices and a government support programme, with only 37% of the 2013 crop sold as of the end of last month, compared with a typical 47%, according to the Confederação da Agricultura e Pecuária do Brasil (CNA).

Indeed, Cepea, the research unit attached to the University of Sal Paulo, reported last week that "Brazilian exporters report difficulties to build stocks, given that producers are refrained regarding sales, expecting more remunerative quotes".

Slow sales imply extra selling pressure ahead.

Producers' losses

However, some commentators are cautioning that the extent of the arabica price decline could, in discouraging growers to fork out for fertilizers and pesticides, see the 2014 harvest fall short of expectations.

The Brazilian coffee price of R$257.54 a bag as of a week ago compared with production costs which in most regions top R$350 a bag, according to the CNA.

Procafe has warned that low fertilizer applications will exacerbate a problem caused by heavy rains that "washed" nutrients from the soil.

The moisture has also created conditions which would encourage the spread of rust, posing a threat given the prospect of low agrichemical applications.