Coffee at 26-month high as Brazil drought raises price volatility

After surging 19 per cent the past four weeks, coffee extended its ascent.

Futures jumped to the highest in two years on Tuesday, after drought damage in Brazil prompted Volcafe to cut its outlook for the crop in the South American country, the world’s top grower and exporter.

The worst Brazilian drought in decades ravaged plants earlier this year, and production of arabica beans will be 18 per cent less than projected, Volcafe, a unit of commodity trader ED&F Man Holdings, said on Tuesday.

Coffee futures jumped as much as 8.3 per cent, driving volatility to the highest since 2000.

“People are realising every day that there’s damage, and that the losses will be hard to quantify,” Hernando de la Roche, a senior vice president at INTL FCStone in Miami, said in a telephone interview. “Traders are jittery because of the uncertainty about the Brazilian harvest and what it would mean to world supplies.”

The global harvest, which includes the robusta variety, will fall short of demand by 11 million bags, Winterthur, Switzerland-based Volcafe estimates. That would mean a world deficit about the size of production in Colombia, the second- largest supplier of the premium arabica beans, which are favoured by Starbucks Corp. A bag weighs 60 kg, or 132 pounds.

Arabica coffee for July delivery soared 7.1 per cent to settle at $2.134 a pound on Tuesday on ICE Futures US in New York.