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Parched Brazil moves coffee to biggest gain in 19 years

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Bloomberg News
Published:
NEW YORK — Coffee futures posted the biggest monthly gain in almost two decades on mounting concern that abnormally dry weather will reduce the crop in Brazil, the world’s top producer and exporter.
Brazil’s southeast including Minas Gerais, the biggest state grower, is having the driest summer since 1972, said Hamilton Carvahlo of the National Institute of Meteorology in Brasilia. Crops suffered “irreversible” damage, and losses will tip the global market into a deficit in the year starting Oct. 1 in most countries, Volcafe Ltd., the coffee unit of commodity trader ED&F Man Holdings Ltd., said in a report.
This year, arabica coffee has soared 63 percent, the most among the 24 raw materials in the Standard & Poor’s GSCI Spot Index. The surge may boost expenses for companies including Starbucks Corp. and J.M. Smucker Co., the maker of Folgers, the best-selling brand in the U.S.
“There’s no question that adverse weather and heat in Brazil has caused prices to rally, which has been mostly speculative in nature,” said Claudio Oliveira, who helps oversee about $80 million in assets as the head of trading at Castlestone Management LLC in New York. “Until we know exactly the damage to the crop this year and next, it’s virtually impossible to come to an equilibrium price that reflects the demand and supply.”
Arabica coffee for May delivery rose 0.6 percent to settle at $1.803 a pound at 1:36 p.m. on ICE Futures U.S. in New York. In February, the price surged 44 percent, the most since June 1994. On Feb. 25, the commodity reached $1.8125, the highest for a most-active contract since October 2012.
Volcafe, based in Winterthur, Switzerland, estimates that global harvests will trail demand by 6.5 million bags next season, compared with a surplus of 4.3 million a year earlier.
This week, Terra Forte Exportacao e Importacao de Cafe Ltda., Brazil’s second-biggest exporter, trimmed its projection for 2014 output by 14 percent to as low as 46 million bags and said the outlook has a “negative bias.”
Plants in some Brazilian regions were hurt in December by heavy rain, according to Somar Meteorologia in Sao Paulo.
“Coffee is definitely the biggest mover because of the one-two punch,” said Fain Shaffer, the president of Infinity Trading Corp. in Indianapolis. “First, there was too much rain last year when it was flowering, and then there’s not enough in the past month. This is going to affect this year’s and next year’s crops.”
In Central America, leaf rust disease spurred two straight years of crop losses.
In the week ended Feb. 18, money managers boosted bets on a rally by 54 percent to 24,291 futures and options, the biggest bullish wager since May 2011, government data showed on Feb. 21.
The arabica premium over robusta beans, used in instant coffee, has more than doubled this year to 87.63 cents a pound, data compiled by Bloomberg show.
Robusta futures for May delivery advanced 0.4 percent to $2,043 a metric ton (92.67 cents a pound) on NYSE Liffe in London. The price has gained 21 percent this year.
Cooxupe, the largest cooperative, is Brazil’s top exporter. A bag weighs 132 pounds.
Every agriculture price in the GSCI posted a gain this month.
In February, raw sugar on ICE jumped 14 percent, the most since June 2011. Soybeans in Chicago had the biggest gain since August. Brazil is the top exporter of both commodities and the biggest producer of the sweetener.

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