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Coffee Prices Plummet to Six-Month Low

NEW YORK ( TheStreet) -- Coffee prices slid to a six-month low Thursday on concerns about excess supply amid favorable weather conditions in Brazil -- the world's largest coffee producer.

September Arabica coffee futures hit a six-month low of $2.3720 a pound Thursday before paring losses. The contract was falling 0.7% to $2.3945 a pound Thursday afternoon.

"Expectations are that weather there should remain mostly favorable for the ongoing coffee harvest through early August," said PFGBest commodity analyst Robin Rosenberg. No frost will be reaching Brazil's main coffee growing areas over the next two weeks, according to the latest weather forecasts.

Rabobank analyst Luke Chandler said coffee prices have returned close to the prefrost lows reached in June, despite a reluctance from producers to sell at these levels.

"This week coffee continued to trade to the downside," said Rosenberg. But "nearing the bottom Bollinger band [a technical tool for traders], the market is about to be tested." While the analyst notes that coffee futures remain weak with the ongoing harvest pressure, he expects to see major support coming in at the $2.03 area.

Contributing to excess supply concerns was the Guatemalan National Coffee Association's report that Latin American exports of mild, washed Arabica Coffee beans rose 5.6% to 2.46 million 60 kilo bags in June from a year ago; and the prediction by India's state-run coffee board that the country's coffee production will increase about 7% to 322,250 tons the next marketing year -- with the majority of the increase attributable to higher production of the high-quality and popular Arabica beans. There are also expectations of large crops in Vietnam in the Fall.

"Coffee industry executives have been attempting to talk the market up -- again," Rosenberg said of the falling coffee bean prices. "Some things never change. A top Brazilian official stated that coffee prices should recover some of their recent losses as the global balance of supply and demand remains delicate...If the situation were delicate coffee would be trading much higher than it is today," says Rosenberg.

From a 12-month and year-to-date standpoint, coffee prices have soared, rising more than 40% and 1% respectively.

Starbucks (SBUX - Get Report) for one has been plagued by soaring coffee prices and raised prices by 17% in the recent quarter. Market watchers will pay close attention to the coffeehouse giant's earnings report, scheduled to be released after the closing bell Thursday, to see if consumers swallowed a more expensive java or curbed their daily fix.

Meanwhile, Green Mountain Coffee Roasters (GMCR) said earlier this year that its margins had been growing despite soaring coffee bean costs. Even so, the Vermont coffee maker said in early May that its margin improvement was a result of successfully passing on higher coffee costs to buyers, and that it would likely raise prices again.

Starbucks shares were popping 4% to $40.52 and Green Mountain Coffee shares were surging 19.2% to $105.01.

Peet's Coffee & Tea (PEET) was adding 2.7% to $59.47, Caribou Coffee Company (CBOU) was jumping 5.9% to $13.55, Folgers coffee maker J.M. Smucker Company (SJM - Get Report) was rising 0.4% to $78.94 and Dunkin' Brands (DNKN - Get Report) was gaining 2.7% to $28.59.

-- Written by Andrea Tse in New York.

>To contact the writer of this article, click here: Andrea Tse.
Copyright 2011 Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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