Arabica-Coffee Futures Still Under Pressure From Big Supplies

  NEW YORK  -  Arabica futures eased Tuesday morning as massive supplies of coffee

continued to weigh on the market.

  "All the fundamentals are still bearish -- it's not indicating that this

(market) is going to recover anytime soon," said Andre Santos, a trader at Ally

Brazilian Coffee Merchants in Plantation, Fla.

  Global supplies of coffee beans have swelled thanks to back-to-back bumper

crops from Brazil, the source of one-third of the world's coffee, and

recovering production from neighboring Colombia.

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

recently 0.4% lower at $1.1400 a pound in thin volume trade.

  "It's a sideways market right now," Mr. Santos said, but futures could touch

$1 a pound before the market finds a bottom, he added.

  Also, Colombians have become much more aggressive sellers of their coffee

over the last two months, Mr. Santos said, which is adding pressure to prices.

  The premiums paid for Colombian coffee "have come down significantly," he

said. "They just want to move, move, move" to make room for the new crop, which

producers will start harvesting soon.

Cocoa Futures Remain at 23-Month High on Supply Concerns

  NEW YORK - Cocoa futures rose to their highest price in nearly two years

Tuesday as traders bet that weather in West Africa would continue to interfere

with supplies.

  Heavy rains in the region are "slowing the shipment of a lot of cocoa into

the ports," said Fain Shaffer, president of Indianapolis-based brokerage

Infinity Trading Corp. West Africa is the source of about 70% of the world's

cocoa, the key ingredient for chocolate.

  The rain isn't expected to reverse the effects of dry weather in July and

August, when the main crop was developing, traders and analysts said. As a

result, the beans being harvested may be of lower quality or fewer in quantity.

  "I think that there's a little bit more upside" to prices, Mr. Shaffer said.

  Cocoa for December delivery on the ICE Futures U.S. exchange ended 0.7%

higher at $2,718 a ton Tuesday, the highest settlement since November 2011.

  Demand for cocoa beans ahead of the holiday season in the U.S. has also

buoyed prices for the chocolate ingredient. U.S. warehouse stock piles are at

their lowest level since Feb. 26, and are down 6% from a year ago.

  Traders also expect that cocoa grindings--the tonnage of beans processed in

Europe and North America-- will rise in the third quarter. Grindings are viewed

as a measure of demand for chocolate.

  The International Cocoa Organization estimates global cocoa supplies will

fall short of demand by about 70,000 tons in the 2013-14 season, which started

Oct. 1. The forecast came after supplies missed demand by 52,000 tons in the

2012-13 season, the first supply deficit since 2010.

  Cotton for delivery in December on ICE ended 0.4% lower at 83.69 cents a

pound, the lowest settlement since Sept. 9. Futures tumbled 3.6% during the

previous session after Tropical Storm Karen left growing areas in the

Southeastern U.S. largely unscathed.

  "The tropical storm did no damage, and (investors) really slammed (the

market)," said Mike Seery, president of Seery Futures, a brokerage in

Plainfield, Ill. And "with the harvest coming in, you're going to get that

supply and maybe some harvest pressure" on the market, he added.

  Raw sugar for March delivery settled 0.2% higher at 18.62 cents a pound, a

near 7-month high, on concerns about supplies in Brazil, the No. 1 producer of

the sweetener. Heavy rains have disrupted harvesting during the tail end of the

sugar-cane crop, pinching supplies as mills prioritize the production of

ethanol over sugar this season.

  Arabica coffee for December delivery ended 0.5% higher at $1.1505 a pound,

and orange juice for delivery in November closed 1.1% higher at $1.2920 a pound

in very thin trade.

Olam Sees Smaller Arabica Coffee Surplus as Robusta Supply Gains

2013-10-08 07:18:56.872 GMT

By Isis Almeida

     Oct. 8 (Bloomberg) -- The global surplus of arabica coffee, the variety favored by Starbucks Corp., will shrink 60 percent in the 2013-14 season started this month in most countries as supplies of robusta gain, according to Olam International Ltd.

     Arabica production will be about 2 million bags greater than demand, down from a surplus of 5 million bags in 2012-13, forecast the Singapore-based company, which trades enough beans to make more than 40 billion cups of coffee a year. Excess supply of robusta beans, used in instant coffee and espresso, will surge to 5 million bags from a balanced market a year earlier, said Dwayne Schmidt, a senior trader for Olam in White Plains, New York. A bag of coffee usually weighs 132 pounds.

     “There’s some decline in production in Central America, but the declining surplus is more a function of stable supply and increasing demand,” Schmidt said in an Oct. 4 interview in Basel, Switzerland, referring to arabica beans. “Robustas are a little bit different, in which the price of robusta is still above the cost of producing the coffee, so the robusta farmers are financially healthy and the crops will be healthy as well.”

     Arabica futures traded on ICE Futures U.S. in New York fell 20 percent this year and are headed for a third annual decline, the longest slump since 1993. Large crops in leading producers Brazil and Colombia helped boost supply. More demand for cheaper robusta beans mean prices on NYSE Liffe in London fared better, sliding 11 percent in 2013 after gaining 6.3 percent last year.

     “The real story on the robusta side has been the increase in demand,” Schmidt said. “Up to this point, the growth in demand has kept pace with the increase in the robusta crop, so we haven’t really seen a build-up in robusta inventories anywhere.”

                          Vietnam Crop

     Vietnam, the world’s largest robusta producer, will reap 28 million bags in 2013-14, a similar crop to the record in 2011-12, according to Olam. The figure includes about 1 million bags of arabica beans. Rising output in Brazil, the top coffee grower and second-biggest in robusta, will also help boost the surplus, Deepak Kaul, a Singapore-based vice president of the coffee division, said in the same interview.

     “A large part of the surplus is coming from Vietnam and Brazil,” he said. “We’ve seen in the past two years that nothing from Brazil is coming out. In Vietnam, in the last two years, farmers got a very good price realization for their robusta, so they are very well-capitalized and don’t have the need to sell, and are very happy to carry the coffee if the price doesn’t suit them.”

                         Robusta Surplus

     While a surplus of robusta beans is forecast this season, supplies will probably be tight until late December or early January and roasters will keep on tapping exchange-monitored stockpiles, according to Kaul. Inventories with a valid grading certificate in warehouses monitored by NYSE Liffe fell 19 percent from two weeks earlier to 60,380 tons as of Sept. 30, bourse data showed.

     “There isn’t much visible coffee available to see and the new crop is also a month, a month-and-a-half away,” Kaul said about Vietnam, adding that farmers there will release the crop slowly throughout the season. “The traditional thought of the Vietnamese farmer selling 60 percent of the crop before Tet is not valid anymore,” he said, referring to the lunar New Year.

     Indonesia, the third biggest robusta producer, gathered a slightly smaller crop in 2013-14 than a year earlier, at close to 10 million bags, Kaul said. Indonesia begins harvesting in April. Roasters are tapping exchange stockpiles as beans from producing nations are trading at a premium. Exchange-monitored inventories will reach 52,000 tons by the end of the year, the lowest since May 2000, a Bloomberg survey published in August showed.

                        Brazilian Harvest

     Arabica coffee production surged after prices rose to a 14- year high in 2011. Growers in Brazil will harvest in 2013 a record crop for a year in which trees enter the lower-yielding half of a two-year cycle, the government estimates. Output in Colombia, the second-biggest arabica producer, gained 30 percent in 2012-13, according to the nation’s Coffee Growers Federation.

     While a frost in Brazil’s Parana state in July will reduce output by 1 million bags next year and the yield-potential will be reduced in Zona da Mata, the main coffee belt in southern Minas Gerais and Cerrado will have “a very good crop,” Olam’s Schmidt said. He declined to provide a forecast and said the crop probably won’t be a record. Trees in Colombia are also very healthy and farmers have been receiving subsidies, he said.

                      Brazilian Stockpiles

     The size of the arabica surplus is about the same amount Brazil plans to stockpile. Latin America’s biggest economy is selling put-options that give growers the right to sell beans to the government at 343 reais ($156) a bag at the end of March, above market prices. The auctions may absorb as many as 3 million bags. Futures fell 2.2 percent in New York last month, when the options program was announced.

     “The producer has probably been more willing to sell at a lower price because he knows that in March he will get 343 reais,” Schmidt said. “Near-term it has been bearish. The market has not seen the effect of the put options and it will become more apparent in the January to June period, when availability of that type of coffee will be very tight.”

     Roasters in Brazil and in some developed importing countries have started to switch from robusta back to arabica as the price difference between the two kinds narrowed, said Thomas Gregersen, country head for Olam in Switzerland. While this trend is “just beginning to pan out,” increasing robusta demand from Asia and other developing nations means growth in robusta consumption is still positive, he said.

     Arabica coffee futures will probably trade sideways in New York for the next 12 months, Schmidt said. Futures for December delivery settled at $1.145 a pound yesterday on ICE. Prices ranged from a high of $1.579 in January to a low of $1.132 this month, exchange data showed.

     “Solving the problem for arabica is a question of price and time and if you do look further ahead into the next year, there will be a deficit,” Schmdit said, referring to 2015 and

2016 crops. “Until this next big crop from Brazil is hedged or a good percentage of it is hedged, the market will struggle to sustain rallies.”