NEW YORK – Arabica coffee futures rallied to two-year highs yesterday in New York. The active contract for May delivery rose 9.1%, or 1.695 points settling at 202.40 cents a pound, the highest level since March 1st 2012.
The spot contract for March delivery surged 8.4% ending at 200.65 cents a pound.
Brazil’s worst drought in decades also fuelled rallies in the sugar and orange-juice markets.
Futures traded on ICE Futures U.S. may soar to $3 a pound by May, coffee analyist Judy Ganes-Chase declared on Tuesday, in an interview on the sidelines of the ICO Seminar ICO Seminar on achieving sustainable supply in the coffee market in London.
A smaller crop in Brazil may tip the global market into the first shortage in five years next season, Stefan Uhlenbrock, an analyst at F.O. Licht, said at the seminar today.
Licht has recently cut its estimate on Brazil’s output to 48 million bags from a previous forecast of 56 million bags due to below-average rainfall and high temperatures.
Wolthers Douqué, a well-know coffee importer based in Fort Lauderdale, Florida has issued a new report, signed by Christian Wolthers, which tries to provide a first assessment of the damages caused by the unprecedented wave of heat and drought in Brazil.
Rains have fallen with relative abundance over the majority of the Arabica coffee areas and this will certainly help to interrupt the progressive negative impact caused by the severe drought and low humidity indexes that happened from December 2013 through late February 2014, says the report.
The main questions now are:
- Will we lose volume in this 14/15 harvest season?
- How much is the 15/16 crop affected by this drought?
The probable answers are:
- Yes, we will see productivity and bean size reduction in 2014; this is due to lack of bean growth and lack of nourishment to develop beans.
- And yes, we will see a smaller crop starting June 2015, this due to lesser new branch area growth during the draught period in 2014 and the natural lower productivity cycle of the plantations, says Christian Wolthers.
How much smaller in 2014 and how much lesser in 2015?
Difficult to predict, but assuming a previous estimate for this year’s crop at about 53 million bags before the drought, a 10% reduction is possible harvesting at best 47.7 million bags in 2014.
For the 2015/16 crop cycle, Wolthers sees the crop at 40 – 42 million due to lower branch growth/lesser fruits, massive pruning during late 2014 and the natural lower productivity cycle.
The report highlights the following facts:
- Brazil’s average annual internal consumption is 20 million bags
- Brazil’s average annual exports of green Arabica and Robusta beans is 33 million bags
- Carry-over January 1rst 2014 estimated at 9 million bags.
High internal consumption and high export volume, allied to a relatively small carry – over, are what have driven the market to where we are today, it says.
A more accurate harvest volume result can only be known by late October 2014 as coffees come in from the fields and the preparation reveals the weight, size and development of the current hanging fruits.
The flowering season of late 2014 will be the first hint of what the 2015 crop might deliver, according to the report.
In other news, Rabobank has scaled up its price forecast to about 140 cents/lb for the first quarter of this year and 150 cents/lb for the second quarter. While it was too early to predict potential losses, Brazil’s arabica yields and quality would be constrained during this season and the next, the Dutch company said.
