MILAN – Arabica coffee futures saw yesterday their biggest daily surge since March 1997, and capped their biggest two-day rally in more than 13 years, on new concerns about the unprecedented drought in Brazil’s main coffee areas as well as bullish chart signals.
Futures surged 23% this week, marking the biggest two-day hike since July 2000 and hitting their 16-month highs. The contract for March delivery ended up 12.5%, or 19.10 cents, at $1.7175 a pound on the ICE Futures U.S. , while the more actively traded contract for May delivery gained 11.5%, or 17.75 cents, to $1.7260 a pound.
“People are very, very worried” about the crop in Brazil, said in an interview with the WSJ Hernando de la Roche, senior vice president at financial services firm INTL FCStone in Miami. “This is the first time that we’ve seen a drought [of this magnitude] during January and February.”
January and February have been the driest months in Brazil in 30 years, according to Somar Meteorologia, a São Paulo-based private weather service. Coffee trees need at least 20 inches of rain over the first three months of the year to develop normally, but the regions have received between four and 6 inches so far, Somar reported.
Growers and traders had hoped rainfall over the weekend would increase moisture levels for the coffee trees.
Instead, only about 1 1/4 inches of rain or less fell in coffee-growing areas, not enough to offset the effects of nearly two months of dry weather.
According to soft commodities analyst Judith Ganes-Chase: “The dry weather now becomes a credible threat to the 2014-15 production outlook.”
Ms Ganes-Chase also said 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,” she added.
According to reports, temperatures reached 94-100 degrees Fahrenheit (34-38 Celsius) in north easterly areas of Minas Gerais.
