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Arabica Coffee Futures Climb on Brazil Outlook as Sugar Gains

Arabica Coffee Futures Climb on Brazil Outlook as Sugar Gains

Arabica coffee futures rose amid shrinking stockpiles and increased concerns that Brazil’s crop won’t soon recover from devastating weather damage.

Inventories at ICE-monitored depots fell a third straight day Wednesday, and are down an eighth straight week to the lowest since March. A stronger Brazilian currency is also eroding incentives to sell the commodities priced in the greenback.

Arabica coffee for March delivery jumped as much as 3% to $2.1290 a pound on ICE Futures U.S. The price has surged almost 90% in the past year after drought and frosts slashed Brazilian yields, eroding prospects for two more years. Growers are offering very little for sale, anticipating supplies will be tight in the coming season, according to analysts at the University of Sao Paulo. 

“We know Brazil’s crop is going to underperform for the next two seasons,” said Nick Gentile, managing partner for NickJen Capital Management. “Roasters are going to use the stockpiles because they are cheaper than bringing stuff from abroad.”

Arabica Coffee Futures Climb on Brazil Outlook as Sugar Gains

Arabica crops in Brazil run on a two-year cycle, where farmers collect one big or high-yielding one followed by a smaller one. Next year is supposed to be high-yielding, and analysts have started to issue projections. While the harvest is expected to rebound, it will stay below the previous comparable crop in 2020-21. Surging costs for inputs, particularly fertilizers, are threatening to curb yields as farmers try to hold down expenses.

Second-ranked supplier Colombia has also seen wetter-than-normal weather hurt output. Higher costs, specially freight rates, have contributed to the rally. 

“I am not bearish on any agricultural markets,” Gentile said. “Fertilizer is very expensive and that’s going to affect yields.”

“Coffee is going to go higher. It’s just a matter of time,” he added. 

Meanwhile, contract defaults in Brazil for beans sold earlier at cheaper prices is still a “pretty bad” situation, and worse than people would like to admit, according to Thiago Cazarini, a broker in Minas Gerais, the nation’s biggest arabica producing state. 

In other soft commodities, cocoa, raw sugar, orange juice and cotton also advanced.

©2021 Bloomberg L.P.