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AFKI Commodities Report: Arabica Coffee Soars On Brazilian Woes, Cocoa Eases

AFKI Commodities Report: Arabica Coffee Soars On Brazilian Woes, Cocoa Eases

Arabica coffee futures soared to their highest level in more than 2⅟2-years at the start of the week as the market focused on concerns that forecasts of prolonged dry weather in Brazil’s key central and southern coffee-growing areas will cause severe damage to the country’s 2015-2016 (April 1-March 31) coffee crop, particularly of arabica beans.

December arabica on New York’s ICE Futures U.S. exchange climbed to $2.2550 a pound on Oct. 6, the strongest level for a front-month contract since January 2012. The contract subsequently lost ground  on profit-taking to settle at $2.2080 a pound, some 14.3 cents up on the day.

ICE arabica coffee futures’ first surge above $2 a pound in two years came in early March as worries about damage to the 2014-2015 crop intensified  following the worst drought conditions in decades to hit Brazil’s key coffee-growing regions in the centre and south of the country early this year.

Brazil’s National Coffee Council, which represents the country’s coffee cooperatives, recently estimated that the nation could see less than 40 million 60-kg bags of coffee in 2015-2016. The council estimated that output in 2014-2015 following the harvest just finished may be down as much as  18 percent to 40 million bags,  the smallest in three years.

Conab, Brazil’s agricultural agency,  had forecast the country’s 2014-2015 coffee output  at between 46.5 million bags and 50.2 million bags before the drought, compared with an output of 49.2 million bags in 2013-2014.

Leading soft commodities analyst F.O. Licht in late September forecast Brazil’s 2014-2015 coffee output at 43 million bags.  Analysts said the market is now waiting for new estimates of the size of the 2015-2016 crop, where harvesting begins next May.

Despite the output concerns, ICE December arabica coffee finished lower at midweek, settling at $214.45 a pound, 1.90 cents down on the day, after touching an intraday high of $2.214.

November robusta coffee on London’s NYSE Liffe exchange also rose,  settling at $2,176 a tonne on Oct. 7,  $96 up on last week’s close at $2,080 a tonne. Robusta coffee had shed some of these gains at midweek,  settling at $2,151 a tonne on Oct.8.

Cocoa futures on the ICE Futures U.S. exchange fell to their lowest since late May amid signs of weakening consumption of the key chocolate-making ingredient and the prospect of bumper supplies from top grower Côte d’Ivoire.

ICE cocoa for December delivery settled at $3,040.50 a tonne on Oct. 8 after dropping to $3,030 earlier in the day, marking the front-month’s lowest point since late May.

The ICE December contract reached a 3½-year high of $3,399 a tonne on Sept. 25 amid fears that the Ebola virus would spread to Côte d’Ivoire and Ghana and reduce output in those countries. To date, the two countries, which typically produce around 60 percent of the world’s cocoa, have had no confirmed cases of the disease.

But Côte d’Ivoire shares a border with Liberia and Guinea, two of the three West African countries to be hardest hit with Ebola. Ghana is Côte d’Ivoire’s eastern neighbour. Fears are that an outbreak of the disease in either country would restrict the movement of cocoa to the coast for export.

Prices for cocoa for March delivery on Liffe are also lower, with the December contract settling at £2,008 a tonne at midweek. In  late September, the Liffe December contract had climbed as high as £2,187 on the worries about Ebola spreading to Côte d’Ivoire and Ghana.

But cocoa futures in New York and London have been falling back on news that the two West African countries are to increase price supports for their cocoa farmers, which would likely increase supply.

Côte d’Ivoire currently expects its 2014-2015 (Oct. 1-Sept.30) cocoa beans production to fall by around 8 percent from the previous year’s record crop of 1.74 million tonnes due to damage by swollen shoot disease, according to a Reuters report, quoting an unnamed official of the country’s Coffee and Cocoa Council.  However, the country still expects to produce around 1.6 million tonnes  in the current season, the official said.

Also weighing on prices is the expectation that European and Asian third quarter cocoa-grind data, which is seen as a measure of demand, will be weaker. The data is scheduled for release in the coming couple of weeks.

Raw sugar futures rose to two-month highs this week, boosted by expectations of lower supplies from top producer and exporter, Brazil.  March raw sugar on ICE Futures U.S. first climbed to 17.12 cents a pound before easing back to settle at 17.03 cents on Oct.7, and to fresh two-month peaks on Oct. 9.

Speculative covering lifted ICE raw sugar to 17.20 cents a pound following the release of data on Oct. 9 from Brazil’s sugarcane industry association, Unica, which showed Brazilian mills crushed less cane in the second half of September than had been expected due to rain. The country’s mills crushed 28.8 million tonnes of cane in the period, against the 30 million tonnes that had been expected.