Record Brazilian coffee crop to cut costs for firms

— Record coffee harvests in Brazil, the biggest grower, are compounding a global glut of arabica beans used by Starbucks Corp. and Dunkin’ Donuts Inc.

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 12 percent to $1.311 a pound by June 30, the average of 14 predictions shows.

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, which manages about $500 million of assets. “Abundant supply is the driving force in the market.”

Brazil now accounts 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.

The record crop comes as growth in coffee consumption is expected to slow to 2 percent this year, from 4.5 percent growth in 2011, according to the USDA. As coffee consumption slows, prices are falling.

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 told analysts Nov. 1. The Seattle-based company expects to save $100 million this year from “favorable commodity costs,” he said.

J.M. Smucker Co., the maker of the Folgers brand, expects lower costs for commodities including coffee to be “favorable” for earnings, Chief Financial Officer Mark Belgya told investors Nov. 16.

More sales and lower commodity prices are helping franchisees to be “more profitable than ever,” Nigel Travis, chief executive officer of Dunkin’ Brands Group Inc., based in Canton, Mass., told investors 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.

Business, Pages 66 on 12/09/2012

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