Coffee and sugar futures soared on Friday on concerns that recent hot and dry weather in Brazil, the source of one-third of the world’s coffee, could crimp the output this year. Brazil had the hottest January ever and the least rain for the period in 20 years.
Arabica coffee entered a bull market, up 23 percent from a closing low in November, and raw-sugar prices posted the biggest daily increase in 14 months.
Arabica coffee for March delivery surged 4.3 percent to close at $1.252 a pound on ICE Futures U.S. in New York.
Sugar for March delivery jumped 3.7 percent to 15.55 cents a pound, the biggest increase since Nov. 19, 2012.
Dry weather also lifted Liffe robusta coffee futures to a five-month high, taking the market above its 200-day moving average, while cocoa turned lower after hitting a 2-1/2 year high on strong demand growth.
A lack of moisture could hurt yields of sugar cane and coffee trees in Brazil, raising questions about whether global sugar and coffee supplies will be tighter than expected. Current forecasts show global production outstripping demand in both markets this year. The dry weather in Brazil comes at a critical time for both crops. The sugar cane has been planted and the arabica trees have started to produce cherries, the fruit that contains the beans used to make coffee. Cane produces less sugar and coffee trees can drop cherries prematurely if the plants don’t receive enough moisture.
Rains in Brazil over the next 10 days are expected to be confined to far southern and north western regions, rather than the central coffee and cane areas. Indeed, moisture shortages will increase further in north eastern areas, especially Minas Gerais, the top coffee growing state, and Sao Paulo, at the core of the Centre South cane belt. The biggest problem is that the rain only came in heavy, irregular showers, and not a constant pattern that would allow soil moisture to stick.
Earlier forecasts by some analysts for Brazilian production above 60 million bags this year probably are too high, Luiz Eduardo de Paula, the owner of H. Commcor, said in a e-mail. Conab, the Brazilian government crop agency, forecasts an arabica crop between 46.5 million and 50.2 million bags of coffee this year, compared with a harvest of 49.2 million bags in 2013.