Coffee soars as Latin America dryness fears rise

Coffee futures cemented their place above 200 cents a pound, as fears intensified over the damage to Brazil's production, this year and next, from drought which is increasingly affecting Central America too.

Arabica coffee futures for December stood 3.7% higher at 208.50 cents a pound in New York at 08:00 local time (13:00 UK time), amongst its highest levels in four months, returning strongly from a long US weekend.

The increase was helped in part by a firm performance on Monday by London robusta coffee futures, which were lifted by data showing a 32% tumble in exports from Sumatra, the top growing region in Indonesia.

Indonesia is the third-ranked producer of robusta beans.

Robusta coffee futures for November nudged a further 0.9% higher on Tuesday to $2,100 a tonne.

'Growers are concerned'

Arabica coffee also received support from a continued slew of downbeat news from Latin America, where  Brazilian harvest results remain downbeat, with research institute Cepea cautioning that production losses in some areas "might reach 65%".

Parana, a mid-ranked coffee growing state, where harvesting is nearly complete, will end up with crop of 514,400 bags, down 69% year on year, according to state farm officials.

And "growers are concerned" about next year too, Cepea said, citing longer-term damage to trees from this year's drought, and premature formation of the blossoms which will produce the 2015 crop, but which can abort without rainfall.

"If weather remains dry, these blossoms should be damaged," the institute said.

Rains stay away

According to consultancy Somar, some 10-15% of coffee farms showed early flowering in the main coffee producing states of So Paulo and Minas Gerais, thanks to unusual rains in July, which is a month typically dry in the region.

"The fixation of these blooms depends on regular and consistent rains, to ensure the 2015 crop is not affected even more, after the damage already caused by drought," the Conselho Nacional do Café producers' group said.

In fact, farmers hoping for follow-up rains have been "frustrated", the CNC said.

'Situation of food insecurity'

Meanwhile, in Central America too, "climatic conditions are also unfavourable to agriculture," CNC said.

"Prolonged drought linked to El Nio has reached Guatemala, Costa Rica, El Salvador, Honduras and Nicaragua, creating a situation of food insecurity in a region already reeling from coffee leaf rust."

The region, an important producer of specialty coffees, has suffered heavy losses to the coffee rust fungus, roya, which causes defoliation and potentially tree death.

Guatemala last week declared a state of emergency in 16 of the country's 22 provinces, citing drought, while the United Nations World Food Programme has warned that more than 2m Central Americans are struggling for food.

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