Coffee futures surged to a 32-month high on speculation that persistent
drought will curb next year’s harvest in Brazil, the world’s largest grower and
exporter.
Dry weather was forecast for the next 10 days after no “meaningful” rain
fell over the weekend in Brazil’s main growing regions, Drew Lerner, the
president of World Weather Inc. in Overland Park,Kansas, said in a telephone
interview. Arabica-coffee prices have almost doubled this year with crops
parched since the start of the year.
With damage worsening before the start of spring in the Southern
Hemisphere, Brazil’s National Coffee Council has estimated that farmers may
collect less than 40 million bags in 2015, creating the longest output slump in
five decades. Starbucks Corp. and J.M. Smucker Co. raised retail prices this
year after futures surged 61 percent in the first quarter.
“Now, trading is all about the weather,” Fain Shaffer, the president of
Infinity Trading Corp. in Indianapolis, said in an e-mail. “Since the chances of
rain have been pushed back another week, we are seeing more premium being built
into prices.”
Arabica coffee for December delivery climbed 6.9 percent to settle at
$2.208 a pound at 1:36 p.m. on ICE Futures U.S. in New York, the biggest gain
for a most-active contract since April 22. Earlier, the price reached $2.255,
the highest for a most-active contract since Jan. 20, 2012.
Flowers for the crop that blossomed from August to late September may fall
off before developing further, Cepea, a University of Sao Paulo research group,
said on Oct. 1.
‘Critical Period’
“It’s a critical period for the Brazilian arabica crop, which is
flowering,” Tracey Allen, an analyst at Rabobank International in London, said
in an e-mail. “Meaningful rain has not yet been received. Continuous rain is
important during flowering to help the flowers develop into the fruit.”
Production this year may be down as much as 18 percent to 40.1 million
bags, the National Coffee Council estimated, after a 3.1 percent slide last
year.
Today, coffee rose as Brazil’s real climbed the most since August 2013.
President Dilma Rousseff faces a runoff election with Aecio Neves, who has
appealed to investors by pledging to slow inflation. A stronger real erodes the
appeal of export sales of the commodity priced in dollars.
Speculators “are particularly active, certainly from a currency point of
view,” Rabobank’s Allen said.
Trading Jumps
Aggregate futures trading was 56 percent above the average for the past 100
days for this time, according to data compiled by Bloomberg.
Bets on higher prices by money managers climbed 12 percent to 39,158
futures and options contracts as of Sept. 30, U.S. Commodity Futures Trading
Commission data showed on Oct. 3.
Coffee has posted the biggest gain this year among 22 raw materials in the
Bloomberg Commodity Index of 22 raw materials. The broad gauge dropped 5 percent
in 2014.
Robusta coffee for November delivery rose 4.1 percent to $2,165 a metric
ton on ICE Futures Europe in London. Earlier, the price reached $2,169, the
highest since May 2. The commodity climbed 29 percent this year.
The arabica premium to robusta was the highest since February 2012. The
ratio has more than tripled this year. Arabica is brewed by specialty companies
including Starbucks, while robusta beans are used in instant coffee.
Brazil is the biggest grower of arabica, and Vietnam is the top producer of
robusta. A bag weighs 60 kilograms (132 pounds).
Source: Bloomberg
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