Record coffee harvests in Brazil, the world's biggest grower, are compounding a global glut of arabica used by Starbucks and Dunkin' Donuts.
Brazilian farmers will reap 50.8 million bags in 2013, a record for a so-called low-crop season, according to the median of nine analyst estimates compiled by Bloomberg. The harvest reached 55.9 million 132-pound bags in 2012, an all-time high for a peak year. Output usually drops in alternate years because of growing cycles. Prices may fall 13 percent to $1.311 a pound by June 30, according to the average of 14 analysts' predictions.
Futures have slumped about 50 percent since May 2011, as the highest prices in 14 years spurred Brazilian farmers to boost supply. Their exports jumped 54 percent to $8.7 billion in 2011. The flood of beans has continued, and stockpiles tracked by the ICE Futures U.S. exchange are headed for the biggest annual gain in more than a decade. Rising costs and concern that economies are slowing encouraged roasters and consumers to favor cheaper robusta beans.
"There's a significant crop coming from Brazil if the weather continues to be favorable," said Claudio Oliveira, the head of trading at Castlestone Management LLC in New York. "Abundant supply is the driving force in the market."
Futures fell 34 percent to $1.507 this year, the biggest retreat of the 24 commodities tracked by Standard & Poor's GSCI Spot Index, which gained 0.5 percent.
Starbucks, the world's largest coffee shop owner, will have "significantly lower" costs at the end of its fiscal year in September than at the start, chief financial officer Troy Alstead said. The Seattle-based company expects to save $100 million this year from "favorable commodity costs," he said. Shares of the company have advanced 13 percent this year.
J.M. Smucker, the maker of the Folgers brand, expects lower costs for commodities including coffee to be "favorable" for earnings, chief financial officer Mark R. Belgya said.
More sales and lower commodity prices are helping franchisees to be "more profitable than ever," Nigel Travis, CEO of Dunkin' Brands Group, said Oct. 25. The fast-food chain, with more than 10,000 stores, sells about 1.5 billion cups of coffee a year and buys only arabica.
Brazil had record harvests in two of the past three seasons, almost doubling output in about a decade and now accounting for 38 percent of global supply, U.S. Department of Agriculture data show. About 72 percent of the country's crop was arabica this year and the rest robusta, typically used in espressos.
"A lot of the optimism about Brazil's crop has pretty much been factored in, and any weather disturbances could take off 3 to 4 million bags," said James Cordier, the Tampa-based founder of Optionsellers.com, a commodity trading adviser.
Arabica beans cost almost three times what robusta cost in September 2011, but the premium has since narrowed to about 74 percent as roasters switched blends to use the cheaper beans. Robusta will rise to 46 percent of global coffee demand this year, from 40 percent in 2010, according to Volcafe, one of the world's leading coffee merchants. The demand is encouraging more robusta supply, which Volcafe predicts will exceed demand by 1.4 million bags in 2012- 2013, led by gains from Vietnam and Indonesia. Arabica output will surpass consumption by 6.3 million bags, Volcafe estimates.