Coffee Surges to Two-Year High as Brazil Dryness Threatens Crops

Coffee futures surged to the highest in two years amid concerns that persistent dry weather will reduce output in Brazil, the world’s top producer and exporter.

Brazil’s Bahia and central and northern Minas Gerais, the biggest producing state, will not get much rainfall over the next 6 to 10 days, Kyle Tapley, a meteorologist at MDA Weather Services in Gaithersburg, Md., said by telephone. “Irreversible” crop damage in the nation will tip the global market into a deficit in the year starting Oct. 1 in most countries, according to Volcafe Ltd. the coffee unit of commodity trader ED&F Man Holdings Ltd.

This year, arabica coffee has surged 75 percent, the most among the 24 raw materials in the Standard & Poor’s GSCI Spot Index, as the driest summer in Brazil since 1972 is plaguing growing areas that account for a third of the world’s coffee. The surge may boost expenses for companies including Starbucks Corp. and J.M. Smucker Co., the maker of Folgers, the best-selling brand in the U.S.

“The lack of rain in coffee-producing areas over the last month has hurt coffee-production potential as the crop was forming cherries,” Jack Scoville, a vice president for Price Futures Group in Chicago, said in a report.

Arabica coffee for May delivery jumped 7.3 percent to settle at $1.9345 a pound at 1:37 p.m. on ICE Futures U.S. in New York, after touching $1.978, the highest for a most-active contract since March 2012. In February, the price surged 44 percent, the biggest monthly gain in almost two decades.

“There were some erratic rains seen over the weekend in most growing areas,” Sterling Smith, a futures specialist at Citigroup Inc., said in a report. “However, they were not of sufficient amounts to change the conditions of the crop.”

Before it's here, it's on the Bloomberg Terminal.