Brazilian Dams and Crops Seen Getting Little Drought Relief

Feb 03, 2014 12:43 pm ET

(Updates coffee and stock prices in last two paragraphs.)

Feb. 3 (Bloomberg) -- Brazilian hydro-power dams and crops are forecast to get below-average rain this month as low water levels push up electricity prices and coffee rallies on concern dryness will hurt output of the world’s top exporter.

The southeastern region, where most of the country’s large power dams are located, probably will receive only 40 percent of the rain that usually falls this month after getting just 27 percent of the historical average in January, said Celso Oliveira, a meteorologist at weather forecaster Somar Meteorologia. Showers in March won’t be enough to offset the damage before the April-September dry season starts, he said.

“You would need torrential rain in March for reservoir levels to rise substantially,” Oliveira said in a telephone interview from Sao Paulo. “The rain that will come will be too little and too late.”

The dryness in Brazil’s most developed and populous region is threatening home water supplies, hurting sugar and coffee crops and forcing power distributors to pay surging prices in the wholesale energy market. Cia. de Saneamento Basico do Estado de Sao Paulo, Brazil’s largest water utility, is offering discounts to consumer who reduce consumption and the government is pledging to offer support to power distributors.

“The distributors are very important for the system and if they need to be helped, we’ll do it,” Energy Minister Edison Lobao told reporters in Brasilia today, without elaborating on the kind of support.

Dam levels in the southeastern and central regions dropped to 40 percent on average on Feb. 2, according to data published on the website of the national power grid operator, or ONS. That’s the second-lowest level for this time of the year since 2001. A year ago, the level was lower at 37.5 percent.

Surging Prices

The average spot electricity price for the southeast and central Brazil surged 69 percent to a record 822.83 reais ($340) a megawatt-hour last week from the week before, according to data on the website of the energy trading board, or CCEE. That’s the ceiling for spot prices set for this year, according to information on the electricity regulator’s website. The previous record was set in July 2001 at 684 reais, CCEE said in an e- mailed response to questions.

The government is also concerned that the dryness will hurt crops, Agriculture Minister Antonio Andrade said in an interview today.

Planting Delay

The dry spell may lead to output losses for coffee and sugar and may delay planting of off-season soybean and corn crops, Andrade said.

Arabica coffee jumped as much as 8 percent in New York today on concern the drought will harm output in Brazil, the biggest grower. Futures for March delivery rose 6.9 percent to $1.3385 a pound at 12:25 p.m. on ICE Futures U.S.

Sabesp, as the water utility is known, slumped 4.3 percent to 21.30 reais, the biggest intraday loss since Nov. 8.

--With assistance from Rodrigo Orihuela in Rio de Janeiro. Editor: James Attwood