Coffee Futures Soar to 2 1/2-Year High on Dry Weather in Brazil

Leslie Josephs

     NEW YORK--Arabica-coffee prices surged more than 7% to the highest level in 2 1/2 years on

Monday as dry weather in Brazil raised concerns about next year's crop.

     Coffee prices have more than doubled this year as a lack of rainfall clipped output from the

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

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

arabica beans.

     The most actively traded arabica contract on the ICE Futures U.S. exchange, for December, rose

to $2.2550 a pound, the highest level since Jan. 20, 2012. December futures were recently up 7% at

$2.2075 a pound.

     "We are in a very sensitive situation where if there are no rains in the next week, there

[won't be] flowerings," said Rodrigo Costa, head of the coffee desk at New York brokerage Newedge.

"The trees are still suffering from the first-quarter problem."

     Brazil had its worst drought in decades in the first three months of 2014. The dry weather

curbed the amount of beans the trees produced for the current crop and could have lingering effects

as growers prepare for the next crop.

     Currently, Brazil's arabica trees are flowering, which determines the size of the coming crop.

A lack of moisture could stunt that process.

     Brazil's coffee-growing areas are expected to remain mostly dry until the third week of

October, according to São Paulo-based forecaster Somar Meteorologia.

Some trees that flowered early could be "in trouble" due to the dry weather, Mr. Costa said.

     Sharp gains in Brazil's currency also helped lift coffee prices, analysts said. The real hit

2.3825 against the U.S. dollar, the strongest since Sept. 25, after Brazil's presidential election.

President Dilma Rousseff came in first but failed to clinch a majority needed to win outright and

will face the more conservative Aécio Neves in a runoff on Oct. 26.

Marina Silva, an environmentalist, took 21% of the vote.

     A stronger local currency is a deterrent for producers to sell since they would receive fewer

reais back for coffee sold abroad in U.S. dollars. The Brazilian currency's move also helped push up

sugar prices. Raw sugar for March was up 1.8% at 16.74 cents a pound.

     Cotton for December was up 0.8% at 62.97 cents a pound. Cocoa for December rose 0.8% to $3,079

a ton, while November orange juice rose 0.2% to $1.4115 a pound.