Coffee surged to 16-month high as dry weather hurt crops in Brazil, the world’s largest producer, potentially tipping the global market into the first shortage in four years. Sugar rose to a three-month high.
Arabica coffee, the variety favored by Starbucks Corp., gained 19 percent last week, the most since 2001. Growers in Brazil probably will harvest 53 million bags this year, compared with production potential of as much as 58 million, Kona Haque, an analyst at Macquarie Group Ltd., said in a report e-mailed today. The crop may fall below 50 million bags if rains fail to return, causing a shortage.
Prices rallied 59 percent this year, the best performer in the Standard & Poor’s GSCI Spot Index of 24 commodities. Main coffee areas of Brazil will get little rain in the next two weeks, Donald Keeney, a senior agricultural meteorologist at MDA Weather Services in Gaithersburg, Maryland, said by telephone. The drought has also threatened sugar, orange and soybean crops. Coffee supplies will top demand by 400,000 bags in the 2014-2015 season, Macquarie estimates.
“If the yields keep getting hurt, we could easily go from surplus to deficit,” Michael Smith, the president of T&K Futures & Options Inc. in Port St. Lucie, Florida, said by phone. “That’s why prices are reacting so dramatically.”
Arabica coffee for May delivery climbed 4 percent to settle at $1.7635 a pound on ICE Futures U.S. in New York, after reaching $1.7935, the highest since October 2012. A bag of coffee weighs 132 pounds (60 kilograms).
Prices may reach $2 “sooner rather than later,” Sterling Smith, a futures specialist at Citi Futures, said in an e-mailed report today. “A negative change in the Brazil weather forecasts will speed this process.”
The premium arabica coffee commands over the robusta variety, used in instant drinks, climbed to 85.5 cents a pound today, the highest since 2012, exchange data compiled by Bloomberg showed.
“The robusta-arabica arbitrage is now wide enough to encourage more robusta demand,” Volcafe, the Winterthur, Switzerland-based unit of trader ED&F Man Holdings Ltd., said in a Feb. 21 report.
Raw-sugar futures for May delivery rose 3.6 percent to 17.68 cents a pound on ICE, after touching 17.79 cents, the highest for a most-active contract since Nov. 19. Copersucar SA cut its forecast for Brazil’s sugar output to 32 million metric tons from a previous estimate of 35 million tons. Trading was more than triple the average for the last 100 days, according to data compiled by Bloomberg.
Prices may continue to climb on the “potential for more reduction in Brazil and some cutbacks in next year’s supply,” James Cassidy, head of sugar trading at Newedge Group in New York, said today in e-mailed report.