After surging as much as 11 per cent to 2015’s high in mid-January, rains in Brazil improved coffee crop prospects and prices are now at the lowest in a year.
Brazil’s most-severe drought in decades damaged crops in early 2014, and traders spent the rest of the year tracking rains as prices surged 50 per cent. Above-normal precipitation in the past month has replenished dry soils, according to MDA Weather Services, and moisture levels are adequate in most growing areas.
“Weather conditions are near perfect in Brazil, and there are no crop concerns anymore,” James Cordier, founder of Optionsellers.com in Tampa, Florida, said in a telephone interview. “Concerns from the drought last year were overblown. Because many trees are young, they were able to rebound and are probably going to produce nicely this year and the next one.”
Arabica coffee for May delivery fell 4.4 per cent to $1.424 a pound at 1:36 p.m. on ICE Futures US in New York, after touching $1.4235. Prices are heading for sixth straight monthly loss, which would be the longest streak since October 2013.
Volcafe, the coffee unit of commodity trader ED&F Man, estimates Brazilian output will rise to 49.5 million bags this year from 47 million bags in 2014, the Winterthur, Switzerland- based company said last week. A bag weighs 60 kilograms, or 132 pounds.
In December, J.M. Smucker, the maker of Folgers, announced an 8 per cent price increase on K-Cup packs effective 5 January. The same month, Kraft Foods boosted retail prices for some coffee brands by 9 per cent, citing gains in raw materials and higher operating costs.
As rains improve crop prospects in Brazil, output is also set to climb in Colombia, the second-largest supplier of Arabica beans. Production will increase as much as 5.8 per cent this year to the highest since 2008, according to Colombia’s main exporter group.
Bloomberg News, edited by ESM
