Prices of Coffee Hit a 25-Month High on Production Concerns

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 Prices of Coffee Hit a 25-Month High on Production Concerns

Coffee futures jumped to a 25-month high amid concerns that global production will experience shortages following a drought that destroyed crops in Brazil, the largest producer and exporter of the commodity.

In the Fiscal year starting October 1 in most countries, global output of will fall short of demand by 7.1 million bags, according to a report compiled by London-based brokerage firm Marex Spectron. US government figures showed the deficit to be the first in five years.

Arabica contracts have advanced 88% in 2014, the highest surge among 24 raw products monitored by Standard & Poor’s GSCI Spot Index. The continued rise may bolster costs for premium-quality coffee products at Starbucks and JM Smucker.

“Concerns about the supply outlook are deepening. This problem is probably going to last more than one season,” Price Futures Group vice president Jack Scoville told Bloomberg by phone.

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May settlement Arabica coffee increased 3.1% to trade at $2.804 per pound as of 1:31 pm on the New York-based ICE Futures. The price was $2.10 earlier, the highest for its kind of contract since February 14, 2012. It advanced for the sixth session in a row, the longest run in two months.

Coffee experts believe that the crop outlook may be hurt for at least three years. Judy Ganes-Chase of Panama-based J.Ganes Consulting said that the trees may not be healthy enough to absorb water after lacking nourishment. The crops will be more vulnerable to diseases, and exposed to other factors that will come to be known down the line, Ganes added.

According to MercoPress, the dry spell in Brazil is expected to continue hampering cherry growth and hurt yields in the country.

Robusta futures for July settlement surged 1.2% to trade at $2,158 per metric ton at closing. The price has risen 28% this year. The Robusta type makes instant coffee.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com

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