Supplies of arabica coffee, favored by Starbucks Corp. (SBUX), will trail demand by 1 million bags in the season starting in October in most countries, the biggest shortage since 2009-10, Rabobank International said. The shortage, following a surplus of 6.6 million bags in the current season, is partly due to higher consumption and falling production in Central America and Mexico due to leaf rust disease known as roya, Rabobank said in a report e-mailed today. Demand for the more expensive beans will climb because of lower prices and a smaller premium to the robusta variety, used in instant coffee and espresso, it said. “The 2013-14 arabica supply and demand outlook point to tighter fundamentals due to lower off season yields and higher demand,” Keith Flury, an analyst at the bank in London, wrote in the report. “The worst case of roya in Central America and Mexico since 1976 is expected to reduce production,” he said. Arabica coffee fell 37 percent last year, making it the worst performing commodity in the Standard & Poor’s gauge of 24 raw materials. Futures are down 6.9 percent this year, heading for a third annual decline, the longest slump since 1993. Arabica’s premium over robusta fell to 34.1 cents a pound today, the lowest since December 2008. “The reduced arbitrage between robusta and arabica prices should support arabica consumption, stopping the shift from arabica to robusta in blends,” he said. Roasters have increased robusta usage in blends in the past two years. Central America Coffee output in Central America and Mexico will fall 14 percent in 2013-14 after declining 4 percent this season, the bank forecast. That is equal to 3.3 million bags, according to the report. Farmers will shift to other crops because of lower arabica prices, and higher costs to fight leaf rust, he said. Output in Central America and Mexico is falling at the same time the Brazilian government may help growers store beans, resulting in falling stockpiles in warehouses monitored by ICE Futures U.S. in New York, according to Rabobank. That will help support prices, Flury said. Futures will average $1.65 a pound in the fourth quarter, 24 percent more than now. Robusta coffee demand will be 300,000 bags bigger than supplies in 2013-14, according to the bank. Consumption of the cheaper beans will remain a function of consumption in emerging markets, Flury said. Source: bloomberg.com/news/2013-03-21/rabobank-sees-largest-arabica-coffee-shortage-since-2009-10-1-.html