The dramatic plunge in coffee prices has become so bad that it's threatening to claim its next victim: the specialty blends used by fancy coffee shops and discerning home brewers.

On the futures market, arabica coffee - the smoother variety favored by companies like Starbucks Corp. - is languishing near a 13-year low. Growers in Brazil, the world's biggest exporter and producer, have expanded output and become more efficient, collecting more beans for every planted acre. The result is a huge glut that's sent prices below break-even in many countries, sparking fear producers will leave the industry.

Some of the hardest hit farmers are in Central America, home to specialty varieties like the Geisha beans grown in parts of Costa Rica. There's a double whammy when futures prices fall. Since many specialty producers plant fields with beans deliverable against arabica-futures contracts, along with premium beans, it cuts into overall profits. The broad downturn for the market at a time of oversupply also erodes and sometimes even erases premiums for higher-grade coffee.

"The fundamental dysfunction is often times farmers will sell coffee at a price that doesn't allow them to have a sustainable livelihood," said Peter Giuliano, chief research officer for the Specialty Coffee Association, which represents producers, baristas and roasters. It's not happening everywhere in the market, but it's "happening often enough that we see it as a crisis," he said.

Brazil, Honduras

In Brazil, there's such an abundant supply, including of higher grades, that premiums for many specialty growers have disappeared, according to Vanusia Nogueira, executive director of the Brazil Specialty Coffee Association.

Meanwhile in Honduras, things have gotten so bad that low prices are preventing growers from harvesting all their crop because they can't pay pickers or cover the cost of input such as fertilisers, according to the National Association of Coffee Exporters. In East Africa - another key region for specialty varieties - Swiss trader Sucafina is helping growers diversify into other crops such as grains and bananas.

If producers do pull back, it could eventually help prices to recover as the market shifts from surplus to deficit. Some traders, such as Marex Spectron, are even hopeful the rebound could be on its way soon. On Monday, July futures rose as much as 1%.

But most investors are gearing up for a period of prolonged rout.

In the week ended April 9, hedge funds held an arabica net-short position of 74 110 futures and options, US Commodity Futures Trading Commission data showed Friday. The figure, which measures the difference between bets on a price increase and wagers on a decline, has been negative since August 2017.

The number of funds with short positions was 105 as of April 9, the CFTC data show. That's close to a record of 111 reached in July.

"The trade is still worried about big supplies," Jack Scoville, vice president of Price Futures Group, said in a report on Friday. "Brazil is dominating the market right now, and other exporters are having a lot of trouble finding buyers."