Coffee Futures Jump to 32-Month High on Brazil Crop Woes

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Coffee futures surged to a 32-month high on speculation that persistent drought will curb next year’s harvest in Brazil, the world’s largest grower and exporter.

Dry weather was forecast for the next 10 days after no “meaningful” rain fell over the weekend in Brazil’s main growing regions, Drew Lerner, the president of World Weather Inc. in Overland Park, Kansas, said in a telephone interview. Arabica-coffee prices have almost doubled this year with crops parched since the start of the year.

With damage worsening before the start of spring in the Southern Hemisphere, Brazil’s National Coffee Council has estimated that farmers may collect less than 40 million bags in 2015, creating the longest output slump in five decades. Starbucks Corp. and J.M. Smucker Co. raised retail prices this year after futures surged 61 percent in the first quarter.

“Now, trading is all about the weather,” Fain Shaffer, the president of Infinity Trading Corp. in Indianapolis, said in an e-mail. “Since the chances of rain have been pushed back another week, we are seeing more premium being built into prices.”

Arabica coffee for December delivery climbed 6.9 percent to settle at $2.208 a pound at 1:36 p.m. on ICE Futures U.S. in New York, the biggest gain for a most-active contract since April 22. Earlier, the price reached $2.255, the highest for a most-active contract since Jan. 20, 2012.

Flowers for the crop that blossomed from August to late September may fall off before developing further, Cepea, a University of Sao Paulo research group, said on Oct. 1.

‘Critical Period’

“It’s a critical period for the Brazilian arabica crop, which is flowering,” Tracey Allen, an analyst at Rabobank International in London, said in an e-mail. “Meaningful rain has not yet been received. Continuous rain is important during flowering to help the flowers develop into the fruit.”

Production this year may be down as much as 18 percent to 40.1 million bags, the National Coffee Council estimated, after a 3.1 percent slide last year.

Today, coffee rose as Brazil’s real climbed the most since August 2013. President Dilma Rousseff faces a runoff election with Aecio Neves, who has appealed to investors by pledging to slow inflation. A stronger real erodes the appeal of export sales of the commodity priced in dollars.

Speculators “are particularly active, certainly from a currency point of view,” Rabobank’s Allen said.

Trading Jumps

Aggregate futures trading was 56 percent above the average for the past 100 days for this time, according to data compiled by Bloomberg.

Bets on higher prices by money managers climbed 12 percent to 39,158 futures and options contracts as of Sept. 30, U.S. Commodity Futures Trading Commission data showed on Oct. 3.

Coffee has posted the biggest gain this year among 22 raw materials in the Bloomberg Commodity Index of 22 raw materials. The broad gauge dropped 5 percent in 2014.

Robusta coffee for November delivery rose 4.1 percent to $2,165 a metric ton on ICE Futures Europe in London. Earlier, the price reached $2,169, the highest since May 2. The commodity climbed 29 percent this year.

The arabica premium to robusta was the highest since February 2012. The ratio has more than tripled this year. Arabica is brewed by specialty companies including Starbucks, while robusta beans are used in instant coffee.

Brazil is the biggest grower of arabica, and Vietnam is the top producer of robusta. A bag weighs 60 kilograms (132 pounds).

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