MILAN – Arabica coffee futures surged to a six-month high on Thursday, driven by a combination of fund buying, a weaker dollar and concerns about dry weather in Colombia and Vietnam.
The most active contract for May delivery settled 350 points, or 2.71%, higher at 132.55 cents per pound – the highest level since for the second month since mid October 2015.
A strong close on Wednesday has triggered some technically-driven buying and speculators may now have moved to a net long position for the first time since late August 2015, traders said.
Strength in the Brazilian real and the overall commodity sector helped support the rally.
The Brazilian real strengthened by 2.83% today at BRL3.6332 , on news that a federal judge issued an injunction to suspend the appointment of ex-president, Lula da Silva, as President Dilma Rousseff’s Chief of Staff.
The dollar sank broadly on Thursday, falling almost another 2 percent to its weakest against the yen since late 2014 after a Federal Reserve meeting that left markets convinced U.S. interest rates would not rise soon.
Dealers said ongoing concerns about the outlook for crops in Colombia and Vietnam had also helped to fuel the market’s run-up during the last few days.
Colombia could produce 1.2 million fewer bags of washed arabica this year as a result of drought across the growing regions, the CEO of the Colombian Coffee Federation Roberto Velez said on Wednesday.
Rivers in Daklak are exhausting, the provincial weather station said in a report; this in turn, reduces underground water table, which is needed for coffee trees until monsoon begins in May.
In Gia Lai, a minor producer among the five provinces in the coffee belt, drought has hit on a large scale, affecting crops a state-run newspaper cited a Gia Lai government report.
Water shortages could reduce Vietnam’s 2016/2017 coffee output, the Vietnam Coffee and Cocoa Association has said.
In London, the most active contract for May delivery closed US$33 higher at US$1,459.
