(Bloomberg) -- The world is overflowing with coffee beans, sending futures for the arabica variety to the worst weekly slump since 1998.The glut is so bad that warehouses in Brazil, the world’s biggest grower and exporter, have never been this full. Trucks in the country’s coffee heartland are waiting days to unload cargo collected from a record crop. Prices in New York, the global benchmark, tumbled 14% this week.Supplies are piling up just as demand remains weak. Arabica coffee is the smoother variety preferred by roasters like Starbucks Corp. With consumers still proving reluctant to head back to cafes and restaurants in droves, consumption for the premium beans is tepid. By contrast, robusta beans, used in instant coffee and at-home blends, are holding up a bit better.Robusta futures in London are down less than 2% this year, while arabica has tumbled 12%.The arabica collapse comes after prices rose in the previous three months. Dry weather in Brazil had sparked concerns over the next harvest, but since then the coffee belt has seen some showers, alleviating the threat.“Prices fell owing to forecasts of rain in key growing regions” in the South American nation, which should boost yields, Caroline Bain, chief commodities economist at Capital Economics in London, said in a report.Nestle Considers Nespresso-Compatible Nescafe Coffee PodsMeanwhile, there are have been some rare deliveries of Brazilian beans to warehouses approved by ICE Futures U.S. That could signal that suppliers in the nation are still holding a big chunk of the 2020 crop.On Friday, arabica futures for December delivery dropped 3.8% to $1.135 a pound in New York. Prices fell for a fifth straight day.Coffee settled below the 50-day moving average and approached the 200-day measure, typically seen as bearish signals by some traders.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- The La Nina weather system could roil global food production, sending prices higher, as potential droughts and floods bring upheaval to a suite of key agricultural commodities from Southeast Asia to South America.The highly anticipated phenomenon has officially formed, the U.S. Climate Prediction Center said Thursday, after the last significant La Nina event occurred in 2011.During that period, upheaval in commodity production led to steep increase in world food prices, with the United Nations’ Food & Agriculture World Food Price Index surging to a record in February 2011, up 37% from the end of 2009.La Nina typically affects a broad range of farm commodities, as it brings above-average winter-spring rainfall in Australia, particularly across eastern, central and northern regions, as well as in Southeast Asia, with the potential for flooding.It can also dry out the southern U.S. through winter, bringing cooler temperatures and storms across the north. In South America, croplands in Argentina can become more arid, with drought possible across parts of Brazil.“The weather phenomenon disrupts production of a broad range of agricultural produce, such as soybeans, corn, rapeseed, sugar, coffee and rubber,” said Bloomberg Intelligence’s Alvin Tai.WheatThe 2010-11 La Nina brought Australia’s wettest two-year period on record, according to the country’s Bureau of Meteorology, and with it a strong 2011-12 winter wheat crop. This season, the crop could climb 78% year-on-year to 27 million tons, the USDA FAS said in July.“A wet spring will support pasture development and grain fill for the winter crop,” Rabobank said in its September agribusiness report. “However, if wet conditions continue into harvest, it can reduce crop quality.”For more on how La Nina weather conditions roil markets, click hereA late-season La Nina is unlikely to have any impact on the current winter crop in Australia, forecaster Abares said in its June outlook. The country’s harvest of grains including wheat and barley is due to start within weeks.La Nina may also exacerbate a bout of dryness in Argentina, jeopardizing what was supposed to be a record wheat crop in one of the world’s top exporters.SoybeansSoy growers in the U.S. might escape damage, with harvests typically complete by November. Brazilian soy may be more at risk “if drought and high temperatures weaken conditions for planting, which stretches from mid-August to mid-December,” said Tai.The U.S., Brazil and Argentina account for about 80% of soybean production and smaller harvests can raise prices, according to Tai. In the 2011-2012 season, Brazil’s soy production declined 12%.PalmAdditional rains in Southeast Asia could boost palm oil production, while the industry could also benefit from lower output of rival soy oil, Tai said.There has already been more rain in Southeast Asia, particularly in Sabah and Kalimantan, since June, said Ling Ah Hong, director of plantation consultant Ganling Sdn. La Nina’s impact on the palm crop would depend on how strong it is, Ling said.“A weak to moderate La Nina is usually beneficial to palm production in the following year,” he said. “However, the heavy rains, if any, may cause immediate short-term disruption to harvesting and crop quality.”Palm oil production usually declines in December and January, after rising in August and September, said Derom Bangun, chairman of the Indonesian Palm Oil Board. More rain in those typically drier months could be positive for monthly output, providing conditions aren’t extreme, he said.CoffeeLa Nina and El Nino events can lead to steep differences in coffee prices. During the last big La Nina, arabica prices surged as much as 127% between 2010 and 2012, while robusta gained as much as 105%.Arabica is mostly grown in Brazil, which can be hit with drought during La Nina, while the premium narrows during El Nino years, as robusta crops in Vietnam and Indonesia are hit by drought, said Tai.The coffee output from Brazil, Colombia and Indonesia fell 5-10% during the same period, while Vietnam’s output climbed as more areas were planted with beans, Tai said.La Nina tends to bring adverse above-average rains to many parts of Colombia, and its effect may start to show up from October to December, said Roberto Velez, chief executive office of Colombia’s National Federation of Coffee Growers.While that may benefit areas that traditionally get less rain, the darker days caused by excess clouds reduce the luminosity necessary for flowering to occur, eroding overall yield potential.Higher humidity can also trigger outbreaks of coffee-leaf rust, which happened between 2010-12, curbing output. However, about 80% of the plants in the second-largest arabica producer are now resistant to rust, compared with a very low percentage during the last La Nina, he said.Still, Indonesia’s coffee production may decline, as the rain causes coffee cherries to fall or rot, especially if rain occurs more than 10 days straight, said Moelyono Soesilo, head of specialty coffee and processing at the Association of Indonesian Coffee Exporters and Industries.SugarSugar output from Australia, Brazil and Thailand could be affected, Tai said. Drought could cut production in Brazil, with yields down 12% during the last big La Nina. In Australia, it’s heavy rain in the country’s north that could create harvest delays.The crush is almost half way done in Australia’s growing regions and “La Nina years can bring an unwanted wet end to the domestic crushing season,” said Charles Clack, a Rabobank commodities analyst, in the September report.CottonFor cotton, drier-than-normal conditions in southern and western Brazil and northern Argentina could have a negative impact on crops there, while more rain could benefit Australian fiber, according to Donald Keeney, senior meteorologist with Maxar in Gaithersburg, Maryland.(Updates with IPOB comment in 16th paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Brazil is set to flood the New York market with rare coffee cargoes as stockpiles that back futures contracts dwindle to the lowest level in more than two decades.Major traders are preparing to ship Brazilian coffee to warehouses approved by the ICE Futures U.S. exchange starting in September, said people familiar with the process, who asked not to be identified because the information is private. The beans will be sampled, graded, and if approved, could represent the first significant increase in exchange reserves from Brazil since 2017.A bumper crop and a weaker Brazilian currency have made the country’s beans more competitive than the washed-arabica type from Central America that usually backs the New York exchange. That’s supporting the planned shipments as traders continue to draw down exchange inventories, with bourse data showing stockpiles at their lowest level since 2000.“The more New York futures rise, the more attractive the delivery of Brazilian coffee to the exchange becomes,” said Nelson Salvaterra, a broker at Rio de Janeiro-based Coffee New Selection. “Shipping to the bourse will be easy. The challenge will be to get beans approved.”ICE started accepting the delivery of Brazilian coffee in 2013, but has so far failed to attract significant amounts as it only accepts washed arabicas, and most of Brazilian production is of naturals, or unwashed beans. Some of Brazil’s semi-washed arabica beans could potentially meet the exchange’s grading criteria and that’s what traders are testing out now, the people said.A group of traders met the exchange earlier in August and discussed the ability to grade Brazilian beans, the people said. ICE Futures officials stressed that no naturals quality would be accepted as the contract is for washed arabicas. There was no mention of semi-washed supplies, the people said.ICE said grading rules state that minimum standards for delivery require coffee to be “sound and free from all unwashed and aged flavors in the cup.”Brazil produced a record 67.7 million bags of coffee this year, according to Santos-based exporter Comexim. Output of semi-washed arabicas was only 2.5 million to 3 million bags, said Cooxupe, Brazil’s top coffee cooperative. Still, production of that quality was bigger than in previous years, Salvaterra said.Coffee from Brazil is trading at a discount to futures, while beans from countries including Honduras and Colombia are trading at a premium. The global coffee market has moved into a period of oversupply and Brazilian coffee has displaced exchange-certified inventory as the cheapest arabica beans in the world, London-based broker Marex Spectron said in a report on Aug. 25.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.