AFKI Commodities Report: Arabica Hits 9-Month High On Brazil Weather Worries

AFKI Commodities Report: Arabica Hits 9-Month High On Brazil Weather Worries

Coffee futures prices saw big gains and sugar also moved higher as markets fretted over potential crop damage amid soaring temperatures and drought in some of Brazil’s top growing areas. Meanwhile, South Africa’s platinum mine strike continues to have only limited impact on prices.

Arabica coffee prices surged to their highest since last May on the back of concerns about potential crop damage and lower output as parts of Brazil experience soaring temperatures and drought. January was the hottest month on record and rainfall was the lowest in more than 20 years, according to the country’s meteorologists. Brazil is the world’s biggest coffee producer and arabica exporter, with arabica coffee accounting for around 75 percent of its coffee production.

Arabica for March delivery touched 144.03 cents a pound in the ICE Futures U.S. exchange in New York on Feb. 6, a level not seen for a most-active contract in nine months and more than 15 percent up on last week’s close at 125.20 cents a pound.

Robusta coffee futures prices also moved higher, touching five-month peaks of $1,879 a tonne on NYSE Liffe this week on the back of the strong arabica rally as well as a lack of selling by top exporter, Vietnam, as the country enjoyed the Tet holiday (Feb. 1-5).

A number of analysts had lowered their crop expectations early this year for Brazil’s 2013/14  crop after heavy rains hit the country’s coffee-growing belt in December. Even so, before the hot, dry weather, many analysts still had expected Brazil to see another record coffee harvest in the current 2013/14 season (Oct. 1-Sept. 30) after record production in 2012/13.

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However, some analysts now believe forecasts for the country’s 2013/14 crop may be looking a little high.

Brazil’s Ministry of Agriculture, Livestock and Food Supplies pegged Brazil’s green coffee production at 49.15 million 60-kg bags, according to an International Coffee Organization (ICO) statement on Jan. 17. This estimate was comprised of 38.29 million bags of arabica and 10.87 million of robusta.  According to the ICO release, the Brazilian ministry put the final official Brazilian production figure for 2012/13 at 50.83 million bags, comprising 38.34 million bags of arabica and 12.28 million of robusta.

Bumper harvests in Brazil and elsewhere over the past several months have added to burgeoning global inventories of the beans,  miring the market in bearish sentiment for much of the past 12 months or more. Since the start of 2014, however, arabica has gained  30 percent in value.

The adverse growing conditions in Brazil also provided some support to sugar prices. Brazil is the world’s top producer and exporter of the sweetener.  Also helping prices is another deferral of a decision by India, the world’s second largest sugar exporter, on sugar export subsidies.

Raw sugar for March delivery on ICE Futures U.S. touched an intraday high of 16.38 cents on Feb. 4, the strongest for a most-active contract since Jan. 2. At midweek, ICE March raw sugar settled at 16.06 cents a pound.

Last week, raw sugar had dipped to a fresh three-and-a-half year low of 14.77 cents on Jan. 28 before finishing the week at 15.55 cents a pound.

Refined, or white, sugar futures, were also higher this week, with the March contract on NYSE LIffe settling at $439.55 a tonne on Feb. 5.  The March Liffe contract last week had dropped below $400 a tonne for the first time for a front-month contract since 2009.

Among other softs, cotton for March delivery settled at 85.52 cents a pound on ICE Futures U.S. at midweek, up 12 cents on the day but marginally off last week’s close at 85.83 cents a pound.

Cotton prices are being supported by tight supplies in the U.S, the world’s biggest export of the fiber. The market also is looking ahead to the next World Supply and Demand Estimates (Wasde) report from the U.S. Department of Agriculture (USDA) which is scheduled for release on Feb. 10. The latest USDA data is expected to show a drop in U.S. stocks of cotton.

Cocoa traded at slightly lower levels after touching 28-month highs in New York and London last week, with March cocoa settling at $2,882 a tonne on ICE Futures U.S. at midweek, while London Liffe March contract finished at £1,846 a tonne.  The ICE March contract had reached an intraday high of $2,933 a tonne on Jan. 28 and Liffe March cocoa had hit £1,853.

Analysts said cocoa remains supported by ongoing supply/demand concerns with the market currently watching the dry weather conditions in top grower Côte d’Ivoire ahead of the start of the mid crop harvest which typically begins in that country in May and runs through to August.  Prolonged dry weather could lead to harvesting delays.

Platinum strike enters third week

A walkout by the Association of Mineworkers and Construction Union (Amcu) workers at South African mines owned by the world’s three biggest platinum producers, Anglo American Platinum (Amplats), Impala Platinum Holdings (Implats), and Lonmin Platinum continues to have a limited impact on prices for platinum and its sister metal palladium despite the strike now entering its third week.

Even an outbreak of violence at Amplats Rustenburg mine on Feb. 4 failed to have much impact on the market, which is seen largely as well supplied. Nor has the failure so far to reach a wage deal.