Coffee Extends Gains to 15-1/2-Month Highs

Alexandra Wexler

     NEW YORK--Coffee prices hit 15-1/2-month highs on concerns that the unusually dry weather in

Brazil would crimp global supplies this year.

     Futures climbed more than 3% Wednesday after posting the biggest one-day gain in nearly a

decade in the previous session. Traders are worried that the lack of moisture will reduce the crop

in Brazil, the world's largest coffee producer and exporter.

     Arabica coffee for March delivery rose 3.3% to $1.5775 a pound on the ICE Futures U.S.

exchange, while the more actively traded contract for May delivery gained 3.3% to $1.5950 a pound,

the highest intraday level since Oct. 30, 2012.

     "Brazil is the name of the game, so if something bad happens in Brazil, you see the market

rally like a rocket," said Marco Figueiredo, vice president at Ally Brazilian Coffee Merchants in

Plantation, Fla.

     Brazil is the source of a third of the world's coffee, and reduced output there could lead

global demand to exceed production this year. Conab, the government crop agency, expects the next

harvest to produce between 46.5 million and 50.2 million 60-kilogram bags of coffee, based on

estimates released in early January. That compares with a harvest of 49.2 million bags in 2013.

     "Plantations in Brazil are enduring dry weather just when rain is needed the most for tree

roots to absorb nutrients as the beans begin to grow inside the coffee cherries," said WeatherBell

Analytics, a New York-based meteorological consulting firm. The cherries are fruit that surrounds

the seeds that are harvested and roasted for coffee beans.

     WeatherBell Analytics expects "limited" rains over the next 10 days. But even those "rains may

be too late, and there isn't enough time to reverse the damage to trees and beans," the forecaster

said in a note.

     Growers are likely to begin evaluating how much damage has been done at the end of this month,

when the coffee cherries are more developed. The cherries could be smaller than usual, or they could

fall from the trees prematurely, due to the lack of moisture, analysts said.

     Mr. Figueiredo expects coffee prices to rise to $2 a pound in the near term, a level last seen

since March 2012.

    "Even if we have (more) rain after the rain, then they will talk about quality issues, they

will talk about the size of the crop," he said.

     The magnitude of this year's rally has been so great that some roasters and coffee shops will

need to raise retail prices in the next few weeks.