Coffee Heads for Biggest Rally to Start Year Since ’97

Feb 07, 2014 2:14 pm ET

(Corrects spelling of name in penultimate paragraph.)

Feb. 7 (Bloomberg) -- Coffee futures rose, heading for the biggest rally to start a year since 1997, after Terra Forte, Brazil’s second-biggest exporter, said its crop estimate for the nation is “unrealistic” following dry weather and record heat.

Rain may be “too late,” and there isn’t enough time to reverse damage to trees and beans in Brazil, the world’s top producer and shipper, Sao Joao da Boa Vista-based Terra Forte said in a report to clients and confirmed by the company. Earlier, futures fell as much as 2.7 percent on forecasts for beneficial weather starting around Feb. 17.

“Our first number of 53 million (bags) seems unrealistic at the moment and will be revised as soon as possible,” Terra Forte’s trading desk said in the report. “Good rainfall now would only avoid further deterioration because we already see irreversible damages.”

This year, arabica-coffee futures in New York have soared 24 percent. Brazil had the hottest January ever, and the least rain for the period in 20 years, according to Sao Paulo-based Somar Meteorologia. Low soil humidity has led to a a phenomenon known Black Heart at several farms across the southeast, leaving beans wilted, rubbery granules half the normal size.

Arabica coffee for March delivery rose 0.7 percent to $1.3665 a pound at 12:43 p.m. on ICE Futures U.S. in New York. Earlier, the price gained as much as 5.2 percent. Trading was more than double the average for the past 100 days for this time, according to data compiled by Bloomberg.

‘More Volatility’

“The impact of the extended dry period will affect volume, beans size and plant development for future crops, but at this point, no one can surely tell exactly the measure,” Thiago Cazarini, a broker at Cazarini Trading Co. in Varginha in Minas Gerais state, said in a report e-mailed yesterday. “Until then, the market should expect more volatility,” with price drops possible after the rally, he said.

Yesterday, futures tumbled 5.1 percent, the most since July 24, 2012. On Feb. 3, the price soared 8.6 percent, the biggest gain since November 2004.

Somar, based in Sao Paulo, said today that changes to atmospheric patterns will favor cold fronts in Brazil’s coffee growing areas starting Feb. 17.

Forecast Reduced

Production at Cooparaiso, a producers’ cooperative in Brazil, will be lower than forecast because dry weather prevented beans from swelling, said Paulo Elias, a superintendent at the company. Output will fall to 2.7 million to 2.8 million bags this year from a previous forecast of 3 million bags. Dry weather will have a bigger impact on next year’s crop, Elias said.

While coffee growing areas in Brazil may get some rain from Feb. 17 to Feb. 19, precipitation in February will be below the historical average, Celso Oliveira, a meteorologist at Somar, said on Feb. 5.

Rainfall in coffee-growing areas this month probably won’t reach 100 millimeters (3.9 inches), compared with a long-term average of 200 millimeters, Oliveira said.

Cooxupe, the world’s largest cooperative, is Brazil’s biggest exporter.

--Editor: Patrick McKiernan