Coffee and sugar futures soared in New York as record-high temperatures triggered supply concerns in Brazil, the world’s top producer and exporter of the crops.
Brazil had the hottest January ever and the least rain for the period in 20 years, according to Marco Antonio dos Santos, an agronomist at Somar Meteorologia. Arabica coffee entered a bull market, up 23 percent from a closing low in November, and raw-sugar prices posted the biggest daily increase in 14 months.
Growing areas in northeast Sao Paulo, Brazil’s biggest cane grower, and southwest Minas Gerais, the leading producer of arabica beans, will be mostly parched in the next two weeks, said Joel Widenor, the director of agricultural services at the Commodity Weather Group. Coffee had the biggest monthly gain since August 2011, and sugar rebounded from a 43-month low.
“Trees are being stressed from lack of rain and high temperatures” this month, Luiz Fernando de Mello Monteiro, a coffee broker at Sao Paulo-based H.Commmcor Ltda., said in a telephone interview. “That will reduce yields this year.”
Arabica coffee for March delivery surged 4.3 percent to close at $1.252 a pound on ICE Futures U.S. in New York. Earlier, the price reached $1.2595, the highest for a most-active contract since Aug. 14.
This week, coffee jumped 9.4 percent, the most since mid-September 2012. In January, futures surged 13 percent. The rally may boost costs for companies including Starbucks Corp. On Nov. 6, the price closed at $1.015, the lowest since Aug. 1, 2006.
Raw-sugar futures for March delivery jumped 3.7 percent to 15.55 cents a pound, the biggest increase since Nov. 19, 2012. Earlier, the commodity reached 15.72 cents, the highest since Jan. 9. This week, the price touched 14.7 cents, the lowest since June 8, 2010.
Trading in both raw materials more than doubled today compared with the 100-day average for this time, according to data compiled by Bloomberg. Call options on futures also jumped.
Heavy rain in December hurt coffee crops in some areas in Brazil. In the past 30 days, precipitation was as much as 50 percent below average, Widenor at the Bethesda, Maryland-based Commodity Weather Group, said in a telephone interview.
“The biggest problem is that the rain only came in heavy, irregular showers, and not a constant pattern that would allow soil moisture to stick,” dos Santos of Somar said today in a telephone interview from Campinas, Brazil.
Earlier forecasts by some analysts for Brazilian production above 60 million bags this year probably are too high, Luiz Eduardo de Paula, the owner of H. Commcor, said in a e-mail.
The crop will be 52 million bags to 55 million bags, he said. “The drought is telling us this market is not going down.”
In the week ended Jan. 28, money managers and other large speculators almost doubled wagers on a price slump to 5,454 futures and options from a week earlier, U.S. government data showed today. Funds have been net-short since late July 2012. A bag weighs 60 kilograms (132 pounds).
“Worries about potential dryness in Brazil are attracting some speculative interest,” Sterling Smith, a futures specialist at Citigroup Inc. in Chicago, said in an e-mail. “If the dryness does persist well into February, there is a high potential for crop losses.”
In 2013, coffee fell 23 percent, the third straight drop and the longest slump since 1993, amid bumper crops in Brazil and Colombia, the second-largest arabica grower. This year, global output will outpace demand for the fourth straight season, according to the U.S. Department of Agriculture.
Arabica is grown mainly in Latin America and brewed by specialty companies including Starbucks.
Money managers increased bearish wagers on sugar by 4 percent to 58,657 contracts, the latest government figures showed. Funds have been net-short since late December.
“The funds had a significant amount of shorts,” Smith said. “The dry weather is prompting some to cover positions.”
A rebound in futures may boost expenses for Krispy Kreme Doughnuts Inc. and Grupo Bimbo SAB.
In 2013, the price fell 16 percent, the third straight drop and the longest slump since 1992.
This month, sugar dropped 5.2 percent, the third straight decline and the longest slump since May, partly because of a global surplus. Declines this week by Brazil’s real against the dollar boosted prospects for higher exports priced in the greenback.