Dry weather in Brazil is giving coffee a kick. Traders and analysts have been watching weather forecasts for Brazil’s main growing region to see if there will be enough rain to overcome concerns that another dry spell could impede the harvest.
Last year, the worst drought in decades crimped the arabica crop in Brazil, the world’s largest coffee producer. Arabica is a type of coffee prized for its mild flavor, NewsNow reported Saturday.
In recent weeks, arabica prices have been volatile as the weather outlooks have shifted.
Arabica for March delivery, the most actively traded contract, brushed a nearly one-year low of $1.5840 during Tuesday’s trading session but recovered to end Friday at $1.6685 a pound, up 3.1% for the week.
Forecasts last week predicted a return to more normal rainfall patterns, but the latest outlook said dry weather could return next week after showers clear up this weekend.
“We’ve been seeing this volatile phase since the middle of December,” said Chris Narayanan, head of agricultural commodities research at Societe Generale in New York. “There’s conflicting stories in terms of dryness in Brazil, and whether they are going to get enough rain to reverse or stop the damage before the harvest.”
Damage to Crops
As the rain picture has appeared to normalize, financial investors in the coffee market have been paring back bullish bets to their lowest levels in nearly a year, according to data from the US Commodity Futures Trading Commission. But if dry weather persists, that could jump back up if the lack of moisture does lasting damage to this year’s crop.
“Some losses appear very likely,” Price Futures Group vice president Jack Scoville said in a note, pointing out dry conditions in other growing regions of Vietnam and Indonesia. Both nations primarily produce robusta coffee, a more bitter variety that can be partially substituted for arabica in some blends.
Sugar prices also extended gains Friday, with analysts and brokers saying traders continued to close out bearish bets against the market in the wake of Brazil’s announcement on Monday that it would increase the ethanol blending requirement in the nation’s gasoline to 27% from 25%.
The move has the potential to reduce output from the world’s largest sugar producer and partially alleviate the glut of sweetener on world markets. The International Sugar Organization expects this to be the fifth year in which production outpaces demand.
