2013.07.0507:47:43UTC+00Coffee crushed as declining real spurs Brazil sales

The anemic Brazilian real in four years is improving coffee shipments from the largest growing nation, producing more to a glut that is cutting costs for Starbucks Corp. (SBUX) and Kraft Foods Group Inc.

First-half shipments were 20 percent greater than a year earlier at 13.385 million bags, or 803,000 metric tons, the Brazilian Trade Ministry said July 1. The real’s 9.4 percent pulled back in the second quarter, the most among 24 major emerging-market currencies, boosted revenue from dollar-denominated coffee sales and encouraged exporters to tap stockpiles that are the biggest since 2007.

Profit Differences

Colombia, the second-largest grower of arabica beans, produced more exports by 32 percent in the first five months of the year after the peso weakened 7.1 percent versus the dollar, according to the nation’s Federation of Coffee Growers. Sales from Peru, the third-biggest producer in South America, relinquished 31 percent in the period as purchasers turn to supplies from Brazil.

Biennial Cycle

Brazilian exports of green, or unroasted, coffee will expand 5.8 percent to 29 million bags in the 2013-2014 crop year that started July 1, the second-highest total on record, according to Cecafe, the exporters’ council in Sao Paulo. Each bag weighs 60 kilograms (132 pounds).

Subsidy Boost

Government intervention may curb the surge in exports and halt the slump in coffee prices, said Jack Scoville, a vice president at Price Futures Group Inc., a broker in Chicago. The government approved a record 3.16 billion reais ($1.4 billion) of subsidies last month to expand storage, buy beans and invest in plantations. It is also considering a proposal to compensate growers when prices drop below a certain level.

Minas Gerais

Parts of the coffee-growing states of Parana, Sao Paulo and Minas Gerais got rainfall that was as much as three times the 30-year average from May 1 to June 25, according to Randy Karst, a meteorologist at World Weather Inc. in Overland Park, Kansas.

Million Bags

Global coffee production, including robusta that accounts for 41 percent of supply, will surpass demand by 4.46 million bags in 2013-2014, from a 10 million-bag surplus a year earlier, according to the USDA. Inventories will hit a five-year high of 30.53 million bags, the USDA predicts.

J.M. Smucker, which merchandises Folgers and Dunkin’ Donuts brand coffees, declared price trims averaging 6 percent in February. The Orrville, Ohio-based company reported a 25 percent gain in fourth-quarter net income to $130.3 million. Kraft (KRFT), based in Northfield, Illinois, said May 3 it would cut the price of 12-ounce cans of Gevalia coffee by 6 percent.

Starbucks stated last April 25 that its managing profit margin in the quarter ended March 31 widened to 15.3 percent from 13.5 percent a year earlier, partly because of cheaper beans. The company slashed its packaged-coffee prices by 10 percent that month.

Hedge funds and other huge speculators are almost the most bearish they’ve ever been, with a net-short position of 27,560 futures and options, according to U.S. Commodity Futures Trading Commission data that begins in 2006.

“Continued bearish fundamentals and the weaker real could take coffee down to $1,” said Ashmead Pringle, the president of Atlanta-based GreenHaven Commodity Services, whose $460 million GreenHaven Continuous Commodity Index Fund tracks a basket of commodities. “I wouldn’t buy it right now.”