Coffee, the best-performing commodity of 2014, is ending the year in a bear market that shows few signs of ending.
Prices that doubled this year by October fell 13 percent in the past two months as rains aided parched trees in Brazil, the world’s top grower. November was the wettest month of the year after the worst dry spell in eight decades forced Starbucks and Folgers to charge more for their coffee.
Ecom Agroindustrial Corp. predicts the 2015 crop will be at least 25 percent bigger than the National Coffee Council’s July forecast, and farmers are exporting more as Brazil’s currency weakens against the dollar. Brazil is heading for its first three-year output drop since 1965, but the easing drought renewed investor attention on a global surplus as production exceeds demand for a fifth straight season. Hedge funds have cut their bullish bets on prices by 35 percent since mid-October.
“We are a bit more bearish on coffee now,” said Paul Christopher, the St. Louis-based chief international strategist at Wells Fargo Advisors.
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Prices may drop 9.2 percent further by April to $1.50 a pound in New York, he said.
“The November rainfall was pretty good, and we also have adequate global supplies.”
Arabica coffee futures tumbled 12 percent this month, paring this year’s advance to 49 percent. While that’s twice the gain for cattle, the next biggest increase among the 22 items tracked in the Bloomberg Commodity Index, only crude oil, gasoline and heating oil fell more in the past 10 weeks.
Global coffee output has exceeded demand for five straight seasons, according to the U.S. Department of Agriculture. Supplies are getting a boost from harvests in Central America and Colombia, where output will rise this year to the highest since 2008, the USDA estimates.
High prices have sparked a surge in exports, boosting inventories of arabica beans at ports in consuming countries.
In the U.S., the largest consumer, stockpiles of unroasted raw beans reached a nine-year high in July and are heading for a fourth straight annual increase, which would be the longest since 1992, industry data show. Starbucks, the largest coffeehouse owner, has secured about 65 percent of its coffee needs for 2015, according to spokeswoman Haley Drage.
“There’s no concern for nearby supply in the U.S.,” said George Kniesel, a vice president for commodities at Massimo Zanetti Beverage Group, the maker of Chock Full O’Nuts and Hills Bros. coffee.