Coffee Slumps to Four-Year Low Futures Lose 3.6% Amid Supply Surplus

NEW YORK—Arabica-coffee futures tumbled to their lowest price in more than four years as investors focused on massive global supplies.

Earlier this week, the Green Coffee Association, an industry group, said U.S. stocks of unroasted coffee in August rose 2.4% from the previous month to 5.56 million 60-kilogram (132-pound) bags. That is the most coffee in domestic warehouses since July 2009, the last time prices traded at current levels.

In addition, forecasts for rains this week in the growing areas of Brazil, the source of one-third of the world’s coffee, are expected to nourish the arabica crop that farmers will start picking in mid-2014.

Arabica coffee for December delivery on the ICE Futures U.S. exchange ended 3.6% lower at $1.1495 a pound, the lowest settlement since July 13, 2009.

Rains in Brazil are negative for prices because they “will create good flowering for the next crop,” said Jack Scoville, vice president at Price Futures Group in Chicago. Coffee trees flower before the fruit containing the coffee beans emerges, and a strong flowering is usually indicative of the size and quality of the harvest.

Expectations for a record “off-year” coffee harvest during the current season in Brazil’s two-year crop cycle have also weighed on the market for months.

“The current crop harvest has proceeded well [and] most traders are still bearish [in the] longer term on big world supplies,” Mr. Scoville said.

Société Générale has reduced its fourth-quarter forecast for arabica-coffee prices “due to the fourth consecutive season of arabica production exceeding demand and a continuing global surplus,” the Paris-based bank said in a note last week. For the last three months of the year, Société Générale projects prices will average about $1.15 a pound.

Prices are likely to stay depressed until demand picks up, traders said.

“We’re still trying to find a harvest low in here,” said Fain Shaffer, president of Infinity Trading Corp., an Indianapolis-based brokerage. He expects prices could trade as low as $1 a pound–a level last seen in September 2006–before that happens.