Dry Brazil outlook sends coffee prices soaring

Coffee futures soared 10% to their highest in a year after the return of rains to parts of central Brazil, after a near-two-month drought, missed many major growing areas, turning the drought into a "credible threat" to production.

Arabica coffee futures for May, New York best-traded contract, touched 156.65 cents a pound, the highest for a nearest-but-one contract since January last year, amid fresh concerns over dry weather in Brazil, the top grower and exporter of the bean.

At that price, the contract was up 39% so far in 2014.

While weekend rains reached Minas Gerais, Brazil's top coffee producing state, amounts represented only a small proportion of the rainfall deficit suffered since late December, especially in north easterly areas, where temperatures reached 94-100 degrees Fahrenheit (34-38 Celsius).

'Dryness likely to linger'

And the state is expected to remain relatively dry.

This week, "some dryness is likely to linger across central Minas Gerais," meteorologists at MDA said.

At WxRisk.com, Dave Tolleris said that, in the one-to-five-day outlook, "most of east central Brazil including Bahia Minas Gerias into Sao Paulo stays pretty dry".

And heading to the end of February too, Minas Gerais looks like proving dry, missing out on Mr Tolleris termed a "wide plume of rain and thunderstorms coming in from the southwest portions of the central Atlantic" to more southerly states, such as Parana, and to more westerly areas, such as Mato Grosso.

'Credible threat'

Brazilian consultancy Somar said that the Cerrado region in northern Minas Gerais would receive at most 14mm of rain over the next five days, with many other areas receiving less.

This following a December-January period in which southern Minas Gerais received half of normal rainfall, or less.

Judith Ganes-Chase, the veteran soft commodities analyst, said: "The dry weather now becomes a credible threat to the 2014-15 production outlook.

"The 2014-15 Brazilian crop had potential to be a record breaker due to the possible enormous size. But now it may be remembered for breaking a different type of record - the first Brazilian crop to be seriously jeopardised by dry weather after it has successfully flowered."

Typically, central Brazil sees wet weather from December, when its sugar cane mills take a seasonal break to avoid the rains.

Damage estimate

Ms Ganes-Chase added that "it is perhaps more the high temperatures than the lack of rain that could hurt the crop more.

"The area of dryness covers much of the coffee region and reservoirs that provide moisture to the region are already running low."

Now, "the question is by how much can the crop be reduced," she said, flagging that Brazil typically requires some 52m bags to cover typical exports and domestic use – it is the second-biggest consuming country after the US.

Coffee trader Olam International on Friday estimated the crop at 50m-51m bags, compared with an initial forecast of 57m-60m bags while Cooxupé, the world's biggest coffee co-operative – which has likened affected, hollow cherries to "bubblewrap"- has estimated losses of up to 30% within its footprint.

The Fundação Pró-Café producers' group has estimated losses in southern Minas Gerais at 20%.

Drop-off point

One key factor in determining losses will be the degrees to which the drought causes to cherries fall from trees, so escaping harvesting.

The Conselho Nacional do Café producers' group warned that the "drought, combined with high temperatures, may cause premature dropping".

Ms Ganes-Chase said: "If the cherries start to fly from the trees, dropping prematurely then there is no return for that lost coffee."