Coffee Approaches Bull Market as Rain ‘Deluge’ Hits Brazil Crop

Jan 08, 2014 2:34 pm ET

Jan. 8 (Bloomberg) -- Coffee futures rose in New York, approaching a bull market, amid signs of a smaller crop in Brazil, the world’s largest grower.

December rains in Brazil’s coffee belt averaged the highest in 90 years for the month, and the “deluge” may have damaged as much as 40 percent of the arabica crop, Celso Oliveira, a meteorologist at Sao Paulo-based Somar Meteorologia, said today in a telephone interview. The company cut its crop forecast 5.6 percent to 51 million bags.

Arabica futures have jumped 19 percent from the Nov. 6 settlement of $1.015 a pound, the lowest since Aug. 1, 2006. A 20 percent gain marks the common definition of a bull market. The global coffee balance will swing to a deficit in the season ending next year as Brazil’s crop shrinks, Volcafe Ltd. said this week.

“The price trend is changing because the market is anticipating that Brazil will struggle to maintain the high production levels of the last couple of years,” Hernando de la Roche, a senior vice president at INTL FCStone in Miami, said in a telephone interview.

Arabica coffee for March delivery rose 3.1 percent to settle at $1.209 a pound at 2 p.m. on ICE Futures U.S. in New York. Yesterday, the price reached $1.226, the highest for a most-active contract since Aug. 19.

Last year, the price dropped 23 percent, the third straight decline and the longest annual slump since 1993, as bumper crops in Brazil bolstered a global surplus. A bag weighs 60 kilograms, or 132 pounds.

Heavy Rain

Brazil’s coffee belt includes parts of Minas Gerais, the leading producer of arabica beans, and Espirito Santo, the biggest grower of the robusta variety. The area got as much as 650 millimeters (25.6 inches) of rain in December, more than triple the normal amount for the month, Somar said.

Volcafe, the Winterthur, Switzerland-based coffee-trading unit of ED&F Man Holdings Ltd., said that Brazilian output may drop to 51 million bags this year from 57.2 million in 2013, partly because of hard pruning by farmers.

The forecasts “have put traders on the alert that the huge crop expected before above 60 million bags will not be achieved,” Luiz Eduardo de Paula, the owner of H. Commcor Ltda., a broker in Sao Paulo, said in a telephone interview.

--Editors: Joe Richter, Patrick McKiernan