11:33 am ET Jun 6, 2014

NORFOLK, VA.— Brazil is the name of the game in the coffee market these days.

The world’s top-grower and exporter of coffee experienced its worst drought in decades earlier this year, sending coffee prices to more than two-year highs above $2 a pound. Arabica-coffee futures surged as much as 94% at the market’s pinnacle in late April. But since then, futures have come off 21%– and market participants from traders to importers to roasters aren’t surprised.

“We haven’t had any problems securing the coffee we need,” said Don Pisano, vice president at American Coffee Corp., an importer and trader, based in Jersey City, N.J., on the sidelines of an industry conference in Norfolk, Va.

George Kneisel, director at roaster Massimo Zanetti Beverage USA, added, “we’ve had no issues.”

Another indication that there’s not a scramble for beans: sizeable coffee stocks. If there as truly a massive shortage of coffee in Brazil this year, ICE-certified coffee stocks would be falling more precipitously, traders say.

The amount of coffee stored in the exchange’s warehouses has been slipping since December, but stocks are only at an 18-month low of 2.5 million 60-kilogram bags. In March 2011, just prior to coffee’s spike above $3 a pound, stocks had been drawn down to an 11-year low of 1.6 bags.

“Those stocks are indicative of a situation, at least in the short-term, that’s comfortable,” Julio Sera, a senior risk management consultant at INTL FCStone in Miami, told The Wall Street Journal. He predicts that the market will be largely in balance this year, estimating a global deficit of 2 million bags to a surplus of 2 million bags, depending on the size of the damage to Brazil’s crop.

The wide range of estimates for Brazil’s production “is indicative of the fact that nobody really knows,” Mr. Sera added.
He expects coffee prices to end 2014 in a range of $1.50 and $1.75 a pound, as long as there’s not a bad frost in Brazil or a severe El Niño over the next few months—the South American nation’s winter.

Carlos Ruisanchez, global head of coffee at Jeffries Bache, LLC, sees the current range of estimates for Brazil’s crop—from about 43 million to 55 million bags, as “extreme.” He projects a crop of around 50 million bags coming out of Brazil this year, with 32 million to 33 million of arabica, the mild tasting beans typically used in gourmet blends.

The drought in Brazil earlier this year “has created some obvious damage but it seems like the damage is very spotty,” Mr. Ruisanchez said.

He sees the market staying between $1.70 and $1.85 in the near term, until more yield and damage reports start to come out in mid-June.

Back-to-back bumper crops in Brazil in 2012 and 2013 have left the country with sizeable stocks to work through, cushioning the impact of the drought, traders said.

Bottom line: “We’re not going to run out of coffee,” Mr. Ruisanchez said. “We have plenty of stocks, but what I think our stocks can’t afford is a lower crop this year and another lower crop next year. We can’t afford two consecutive bad years in Brazil.”