Arabica coffee soars to 17-Week High

Brazil , Coffee , El Niño Sep 03, 2014 No Comments

Arabica coffeeThe December arabica-coffee contract on the ICE Futures U.S. exchange gained 8.25 cents, or 4.1%, to $2.0945 a pound, the highest settlement for the most actively traded contract since April 29.

The increase was helped in part by a firm performance on Monday by London robusta coffee futures, which were lifted by data showing a 32% tumble in exports from Sumatra, the top growing region in Indonesia, the third-ranked producer of robusta beans.

Coffee futures jumped to a 17-week high on concern that dry weather at a crucial time for flowering will hurt crops in Brazil, the world’s top producer and exporter.

Output may decline in the season that starts in May to as low as 50 million bags from 53 million to 55 million this year, Jorge Esteve Jorge, a vice president at Empresa Interagricola SA, a unit of Ecom Agroindustrial Corp. Ltd., said today in a telephone interview. A lack of rain cut the yield potential for trees devastated by drought in the first quarter, he said.

“I think the market is trading on the weather and the outlook for 2015,” one European analyst said, noting that while some rain was forecast in the next week it would take prolonged showers to replenish moisture levels.

Dealers said roasters remained largely sidelined with some feeling under little immediate pressure to buy given the current high level of Brazilian exports and ample stocks in the United States, Europe and Japan.

Brazil exported 2.69 million bags of coffee in August, up from 2.40 million in the same month last year, according to trade ministry figures issued on Monday.

Arabica coffee prices have gained 89% this year as Brazil’s worst drought in decades hurt the development of coffee cherries, prompting growers, exporters and other industry members to slash their estimates for the current crop.

Now the weather is posing a new threat to Brazil‘s coffee production. Abnormal early rains in recent weeks sparked early flowering in some coffee trees, coffee exporters have said. The rains were followed by another dry spell, which could cause the coffee trees to abort the flowers and prevent coffee cherries from growing.

“Everyone is just looking at the weather, which is not good,” said Jack Scoville, a vice president at Chicago brokerage Price Futures Group.

Meanwhile, in Central America too, “climatic conditions are also unfavourable to agriculture,” the Conselho Nacional do Café producers’ group said.

“Prolonged drought linked to El Niño (see latest update) has reached Guatemala, Costa Rica, El Salvador, Honduras and Nicaragua, creating a situation of food insecurity in a region already reeling from coffee leaf rust.” The region, an important producer of specialty coffees, has suffered heavy losses to the coffee rust fungus, roya, which causes defoliation and potentially tree death.

Guatemala last week declared a state of emergency in 16 of the country’s 22 provinces, citing drought, while the United Nations World Food Programme has warned that more than 2m Central Americans are struggling for food.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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