Coffee futures dropped to the lowest since 2006 in New York as a global oversupply weighs on the market.
Arabica coffee, favored for specialty drinks such as those made by Starbucks Corp. (SBUX.O), has been one of the worst-performing commodities in the past year. Much of the slump has been driven by top producer Brazil, which harvested a record amount of coffee in 2018 and is preparing to collect another big crop this year.
Arabica futures for May fell as much as 2.6 per cent to 94.65 cents a pound in New York. Prices have dropped about 20 percent in the past year, and speculators have been net bearish for about 18 months.
“Supply will react at some point, but in the short term, prices might go down a little further,” said Michaela Kuhl, an analyst Commerzbank AG.
In Brazil, years of high local prices allowed farmers to invest more, leading to better yields, while favorable weather helped boost production. The country will produce 57.6 million bags of coffee in the 2019-20 season, which is more than initially expected, according to Rabobank International.
While some growers around the world are struggling, it’s hard for them to react and switch to other crops as coffee trees last several years once planted. When prices are low, farmers sometimes use less fertilizer or prune trees, but this takes time to impact supply.
Still, much of the worst could soon be over. Olam International Ltd., the world’s second-largest supplier, in late February said futures could rally amid a smaller surplus as bad weather hurts producers in major growing regions such as South and Central America.