Coffee futures surged 8.1 percent, the most in six weeks, as concerns mounted that crop losses from a drought will increase in Brazil, the world’s biggest producer and exporter.
On ICE Futures U.S. in New York, arabica coffee for July delivery jumped 15.25 cents to settle at $2.041 a pound, the largest gain since March 5. The 60-day volatility climbed to the highest in 13 years after the price tumbled 8.9 percent in the previous two sessions.
Crop losses may rise as high as 35 percent in southern Minas Gerais, the leading state producer in Brazil, Christian Wolthers, the president of Wolthers Douque, an importer in Fort Lauderdale, Florida, said following a tour of the region. Drought damage has expanded, and beans in the early harvest are low quality, said Carlos Paulino da Costa, the head of Cooxupe, Brazil’s largest cooperative.
This year, futures have soared 84 percent, the most among 24 raw materials in the Standard & Poor’s GSCI Spot Index. The rally in the premium arabica beans may boost costs for companies including Starbucks Corp. and J.M. Smucker Co. the maker of Folgers, the top-selling U.S. brand. Industry estimates for the 2014 crop range from 40.1 million bags to 56.5 million, compared to more than 60 million in November.
“The market rose after the reports from Douque and Cooxupe,” said Luiz Eduardo de Paula, the owner of H. Commcor, a Sao Paulo-based brokerage. “If the worst estimates come true, prices could rise above $3,” he said, without giving a timetable.
On April 11, arabica reached a two-year high of $2.109. The price last topped $3 in May 2011.
Volatility surged to the highest since late 2000, according to data compiled by Bloomberg. The price tumbled in the previous two days amid forecasts that rain would boost Brazil crop, while exports jumped from Vietnam, the second-biggest producer.
Brazil’s crop woes may lead to a global deficit of 7.1 million bags in the 12 months starting Oct. 1, said Marex Spectron, a London-based brokerage.
Futures dropped in the previous three years, the longest slump since 1993, amid global surpluses.
The Brazil tour showed “a high amount of watery, single, small and defective formation, dead and discolored beans inside,” Wolthers Douque said.
“It’s still premature to talk about the exact size of the damage because not all areas were affected,” de Paula of H. Commcor said. “We will have a better idea next month because the harvest is just beginning. We are also expecting a very good robusta crop, and the rains we’re getting may bring a good harvest next year.”
The arabica premium to robusta, used in instant coffee, surged 14 percent to $1.0721 a pound, the biggest jump since March 5, according to Bloomberg data.
On NYSE Liffe in London, robusta futures for July delivery rose 2.6 percent to $2,136 a metric ton (96.89 cents a pound). The price has climbed 27 percent this year.
A bag weighs 60 kilograms, or 132 pounds.