Coffee Futures Hit Fresh Two-Year Low

NEW YORK—Arabica coffee futures touched a fresh two-year low as the market continues to retreat in the face of a projected record harvest from top producer Brazil.

Front-month arabica for July delivery settled 0.3% lower at $1.4955 a pound Monday, after touching an intraday low of $1.4820 a pound, a price last seen on June 15, 2010. ICE coffee futures have tumbled 15% over the last month.

Prices have fallen as analysts have predicted a Brazilian crop as big as 60 million 132-pound bags. But rains have slowed the harvesting of beans and delayed confirmation of the crop’s size.

However, investors continue to bet on a glut of supply from Brazil.

“Everybody seems to be in love with the Brazil crop,” said Jack Scoville, vice president at Price Futures Group. “They just keep selling because it keeps working.”

In addition, hedge funds and other speculators continue to bet that coffee futures are heading lower.

In the week ended June 12, speculative investors in arabica added 770 short positions, or bets that prices would fall, making speculators net-short by 14,601 lots, according to the Commodity Futures Trading Commission’s Commitment of Traders Report. However, the final size of the Brazilian arabica crop remains unknown.

“Certainly, we cannot really take stock in what the Brazilian coffee crop will measure out to until perhaps mid-July when we get most of it [off the tree],” said Hector Galvan, senior analyst at R.J. O’Brien Futures.

“If by … mid-July we don’t see the numbers that we have seen projected, I could easily see coffee back to the $1.80 mark, if not higher,” he added.

Demand will also be a key factor in a potential recovery for futures. After arabica prices on ICE hit a 14-year high of $3.0625 a pound last May, a lot of coffee roasters began to blend their arabica with cheaper, more-bitter-tasting robusta beans.

“Roasters did do some substitution to robusta,” said Marcio Bernardo, an analyst at brokerage Newedge. “Now the question is if they are going to come back to arabica.”

Since front-month arabica futures on ICE have fallen 34% so far this year, the new, low prices could entice some roasters to switch back. But, if consumers have accepted the blends with robusta, Mr. Bernardo added, it could tempt roasters to stay with the cheaper option.

Uncertainty over the macroeconomic situation in Europe, which could affect overall demand for coffee, is also weighing on the downtrodden market. News that the pro-bailout party narrowly won in Sunday’s Greece elections could not stir much confidence that the region’s problems will go away.

“Market players are evidently aware that all that has been bought once again is a little time, and that the underlying problem has not been resolved,” Commerzbank said in a note. “The sovereign-debt crisis will continue to worry the market for a long time yet, which could prevent any significant increases in commodity prices.”

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