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Coffee futures revive as Brazil harvest hopes fade

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Coffee futures extended their recovery amid talk of results from the Brazilian harvest living up to weak expectations, with ideas growing of a fall in production too in Vietnam, the top grower of robusta beans.

Arabica coffee futures for July delivery soared 4.5% at one point to 179.70 cents a pound in New York, rising back above their 20-day and 75-day moving averages, and up more than 8% in three sessions.

The September contract, which is picking up trading volumes as the July lot approaches expiry rocketed 4.4% to 182.40 cents a pound.

London robusta coffee futures for September hit $2,023 a tonne, up 2.6% on the day, and up 6.8% since Tuesday's close.

'Very wide range'

The recoveries came as the pendulum of doubt over Brazil's crop size, which two weeks ago was seen as having suffered less severely from early-2014 drought than had been thought, swinging back to ideas of more severe damage.

"The difference between low end estimates and high end estimates remains very wide and is at least 10m bags from the low end to the high end," Jack Scoville at broker Price Futures said.

However, recent grower reports include one from the São Sebastião do Paraíso co-operative in the south of Minas Gerais, the top Brazilian coffee growing state, estimating its output at 2.45m-2.50m bags, down from an initial forecast of 3m bags.

'Steady stream of reports'

At Citigroup, Sterling Smith said: "We are getting a steady stream of reports that beans are of small size, are malformed or not there at all. Farmers are harvesting cherries without beans in them."

Lucio Dias, commercial superintendent at Brazil-based Cooxupe, the world's largest coffee co-operative, warned in February of crops resembling "bubble wrap, because there is only air inside".

Mr Smith said: "If you have 1 empty cherry, 2-3 malformed beans, and 5-6 normal, that is going to lead down the road to crop reductions."

Talk currently is that it is taking some 600-700 litres of beans to fill a 60-kilogramme bag, rather than the 400-500 litres normally.

Minister's comments

The talk has unsettled a more optimistic consensus which was building two weeks ago, through estimates from the likes of Interagricola, affiliated to soft commodities trader Ecom, which pegged the crop at more than 51m bags and Mercon, with a figure of 50.5m bags.

Brazil's agriculture minister, Neri Geller, has been rebuked by many in the industry over an estimate last week that Brazil's coffee output was poised to recover next year, saying that "growers manage to take good care of the trees because the prices have gone up, so we will have a bumper crop."

Sergio Francisco de Assis, president of the federation of coffee growers of in the Cerrado region of Minas Gerais, said that Mr Geller may have been poorly advised.

Citigroup's Sterling Smith said that it will be "difficult even with perfect weather to match the crop this year" in 2015, which is anyway an off year in Brazil's cycle of higher and lower production years.

Coffee beans are borne on vegetation grown the previous year, meaning that vegetative stunting seen thanks to the early-2014 drought will affect the 2015 harvest.

'Delayed and insufficient rainfall'

Meanwhile in Vietnam, ideas are mounting of a fall in production this year, after dry weather in parts of the main Central Highlands producing region, which an El Nino could exacerbate, and after a bumper harvest last year, likely to induce tree stress.

"On top of the fact that coffee trees are fatigued after two highly productive years, there could also be delayed and insufficient rainfall as a result of El Niño," Commerzbank said.

The El Niño weather pattern often causes unduly dry weather in South East Asia.

Analysts current see production falling by 4% to 1.64m tonnes, a Bloomberg survey showed.

Arabica coffee for July stood at 174.75 cents a pound in late deals in New York, up 1.6% on the day.

September robusta beans were 1.7% up at $2,006 a tonne in London, looking to close above $2,00 a tonne for the first time this month.

By Agrimoney.com

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