Coffee Surges as Hurricane Snags and Brazil Heat Add to Worries
(Bloomberg) -- Arabica coffee extended its monthly surge as the aftermath of Hurricane Ida brings supply-chain snags and adverse weather forecasts point to more stress ahead of beleaguered crops in top supplier Brazil. Sugar also gained.
Weekend rains brought relief to Brazil’s central regions including Mato Grosso do Sul and parts of Parana and Sao Paulo, though it didn’t reach the top growing region of Minas Gerais, said Donald Keeney, senior meteorologist for Maxar Technologies Inc. Major arabica areas of Sao Paulo and Minas may also face dry conditions and above-normal temperatures in the next two weeks, according to Somar Meteorologia.
“The main driver is Brazil’s forecast,” said Hernando de la Roche, senior vice president for StoneX Financial Inc. in Miami. “This will remain a weather market for the next few weeks,” at least until the typical arrival of the rainy season by the second half of September. Traders are weighing that against potential impact of Covid-19 variants on the economy and demand, he said.
Supply concerns also emerged after Ida shut down the U.S. port of New Orleans during a period of already high freight costs, shortage of containers and shipping delays. Some big companies roast coffee in the port city.
Ida’s impact will probably slow traffic for weeks in New Orleans, said Nick Gentile, managing partner for NickJen Capital Management. Given all the supply headwinds, “the only thing that could keep coffee from another major leg up,” possibly toward $3 a pound “would be if the world shuts down again for Covid.”
Arabica coffee for December delivery settled at $1.999 a pound on ICE Futures U.S., up 4% and the highest for a most-active contract since since late July. The beans favored by Starbucks Corp. are headed for a 11% gain in August, jumping 55% in the past year after last year’s drought and last month’s frosts slashed yield prospects for at least two more years.
The price is still down from a seven-year high reached last month, following the chilling blow that left trees defoliated and burned.
“Prices seem to have regained upside momentum and could be heading back to a retest of their late July highs,” according to the Hightower Report in Chicago.
Brazil isn’t the only coffee giant with problems. Too many cloudy days have hindered crops in Colombia, the second-biggest shipper of arabica, and pandemic lockdowns are curbing export flows out of Vietnam, the biggest exporter of robusta beans traded in London, where markets are shut Monday for a holiday.
In other soft commodities, raw sugar for October delivery gained 0.9% to 20.22 cents a pound in New York, for a monthly jump of 13%. There are signs of further demand despite the higher costs, with Egypt recently buying 200,000 tons of Brazilian raw sugar.
Minor sugar-cane regions in Louisiana probably were hurt by Ida, which made landfall Sunday in the second-largest growing state.
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