Coffee Futures Prices Plummet Amid Speculation of Underselling Damage to Brazil's Crop

Speculation among coffee traders that the damage to Brazil's coffee crop from two recent freezes was not as bad as initially thought sent prices plummeting yesterday. The Brazilian Government had estimated the first freeze destroyed approximately 10 million 132-pound bags of coffee, reducing the anticipated 1995-96 crop to 17 million bags. However, the lack of hard news regarding coffee supply and demand also contributed to the decline in prices. This comes after coffee prices had more than doubled from June 24 to July 13 due to the frosts in coffee-growing areas of Brazil.

Key Takeaways:

• Coffee futures prices fell sharply yesterday amid speculation that the damage to Brazil's coffee crop from two recent freezes was not as bad as initially thought.
• The September contract for green arabica coffee beans dropped 10.2 cents to $2.09 a pound at the Coffee, Sugar and Cocoa Exchange in New York.
• Analyst Sandra Kaul of Smith Barney Inc. estimated that the total losses from the freezes would not exceed 10 million bags.
• Cocoa futures also fell sharply, with September cocoa deliveries dropping $57 to $1,417 a metric ton.
• Crude oil futures sank after a report that a Nigerian oil workers' strike would continue, with September crude falling 20 cents to $19.41 a barrel.
• Grains and soybeans rose, contributing to a decline of only 0.30 point in the Commodity Research Bureau's index of 21 commodities to 232.78.
• Large speculators had bet heavily on higher coffee prices, which led to selling as they expected to offset those positions by selling contracts rather than taking delivery of coffee.

Statistics:

• Coffee futures prices fell 10.2 cents to $2.09 a pound at the Coffee, Sugar and Cocoa Exchange in New York.
• Japan's leading export credit insurance agency said that the highest prices ever paid were in 1995, for a 1996 shipment of green arabica coffee beans, reaching a peak of $2.74 a pound in July.
• The Brazilian Government estimated that the first freeze destroyed an estimated 10 million 132-pound bags of coffee.
• The anticipated 1995-96 crop was reduced to 17 million bags due to the estimated damage from the first freeze.
• The second freeze was estimated to have pushed the damage to at least 13.5 million bags.

Sources:

• New York Times, July 14 (no date given)
• Sandra Kaul of Smith Barney Inc.
• Michael Whalen of Cargill Investor Services Inc.
• Stephen W. Platt of Dean Witter, Discover & Company
• Commodity Futures Trading Commission report