Coffee Has a Dire Week as Glut Sends Robusta to Nine-Year Low

(Bloomberg) -- The coffee market needs a shot in the arm to break it out of a renewed slumber.

Robusta, favored for instant drinks, dropped to the lowest since 2010 on Thursday and is down 4.8% this week. Coffee prices have been weighed down for several years amid too much supply, while a weaker currency in key producer Brazil has recently added more pressure.

“We’re still suffering as a result of overproduction,” said Gary Herbert, a senior coffee broker at Sucden Financial Ltd. “There was the big Brazil crop a couple of years ago. This one isn’t so big, but also other countries like Colombia had big crops, Vietnam had reasonable crops.”

Coffee Has a Dire Week as Glut Sends Robusta to Nine-Year Low

Robusta futures were little changed at $1,270 a ton in London, down 17% this year. Arabica coffee, used in specialty drinks such as those made by Starbucks Corp., added 0.2% to 95.55 cents a pound in New York, but is down 1.3% this week.

Here’s are some key market drivers:

Market Glut

A second straight global annual surplus has been the main driver of coffee’s slump. The International Coffee Organization this week raised its estimate for the 2018-19 glut by 26% to 4.96 million bags, and inventories are piling up after bumper harvests.

Coffee Has a Dire Week as Glut Sends Robusta to Nine-Year Low

A weaker Brazilian real has also hurt sentiment, because it encourages more exports from the key producer. The currency this week touched the weakest in almost a year versus the dollar.

Bearish Investors

Money managers have been betting on lower robusta prices since December, and while they cut net-short positions slightly recently, they’re still holding one of the biggest bearish wagers on record. Speculators also expect declines in arabica.

Coffee Has a Dire Week as Glut Sends Robusta to Nine-Year Low

Chart watchers may find little reason to expect a sizable price recovery soon. Coffee futures have dropped below key moving average levels in recent months, and the 14-day relative-strength index isn’t showing that the market is oversold.

Market Impact

Lower prices might be good for roasters because they could end up paying less for beans, but they’re piling pressure on farmers. In some nations, prices are below the cost of production, and growers can find it hard to quickly switch to other crops because coffee trees last several years once planted.

The price “is pretty low right now, and it’s putting a lot of pressure on many farmers,” Starbucks Chief Executive Officer Kevin Johnson said in a Bloomberg TV interview. “There are a number of farmers that are distressed.”

In other soft commodities:

  • Cotton is up slightly this week in New York as Hurricane Dorian threatened U.S. crops.
  • Raw sugar is down 1.7% this week, trading near the lowest in almost a year.
  • New York cocoa is set for a 0.7% weekly increase.

©2019 Bloomberg L.P.

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