Arabica Coffee Futures Rally to Nearly 3-Year High

Alexandra Wexler

     NEW YORK--Arabica-coffee prices rallied Thursday as concerns about supplies of the beans amid

record demand squeezed the market to the highest level in nearly three years.

     Coffee prices have doubled this year as erratic rainfall clipped output from Brazil, the

world's biggest grower, and fueled worries about how the already weakened trees will fare next

season.

     This is a time of year when rains are needed to help the trees flower, analysts say. But dry

weather has caused some trees to drop their flowers, and others aren't flowering at all. Without

flowers, there won't be any coffee cherries--the fruit that contains the seeds that are roasted to

make beans.

     Brazil is the source of one-third of the world's coffee and about half of the world's arabica

beans, so any disruption in supplies there ripples through the global marketplace.

     Arabica coffee for delivery in December on ICE Futures U.S. rose 3.4% to $2.2165 a pound, the

highest settlement since Jan. 20, 2012.

     "I don't expect it to stop," said Hector Galvan, senior market strategist at RJO Futures in

Chicago. "The weather right now is really going to put the pressure on."

     He expects futures to crack $2.40 a pound in the next two weeks, a level last seen in November

2011.

     The recently ended coffee harvest was Brazil's smallest in three years, after the main growing

region experienced its worst drought in decades in the spring. Next year is an off-year in Brazil's

two-year coffee cycle, meaning production would already have been lower without the unusual weather.

     That lower production is being exacerbated by steadily rising demand for the beverage.

Market-research firm Euromonitor International projects that demand for coffee beans will reach a

record 4.95 million metric tons this year, a 2.5% increase over 2013.

     Global coffee production could fall short of demand in the season that began Oct. 1 by the

largest amount in nine years, according to the International Coffee Organization.

     In other markets, cotton for delivery in December on ICE fell 1.5% to 63.94 cents a pound after

the U.S. Department of Agriculture reported tepid demand for the fiber. During the week ended Oct.

2, net export sales for upland-variety cotton--the most commonly grown type in the U.S.--totaled

68,500 bales, down 35% from the prior four-week average.

But low prices for the fiber could actually turn that trend around, traders and analysts say.

     "Mills will be able to take advantage of the much lower price and the likelihood of similar

values in 2015 and possibly 2016...and boost cotton purchases," said Sharon Johnson, senior cotton

specialist and introducing broker for KCG Futures in Atlanta.

     December-delivery cocoa closed 0.6% higher at $3,057 a ton. Raw sugar for March delivery ended

down 1.3% at 16.70 cents a pound, while orange juice for November delivery was flat at $1.4320 a

pound.