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Arabica futures jump again, as Brazil dryness worries mount

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Arabica coffee futures jumped again, taking gains for the week to 8% - and rebuilding their premium to robusta beans - amid "worrisome" forecasts for further dryness in major Brazilian growing areas.

New York-traded arabica coffee futures for December, the best-traded contract, closed up 2.7% at 141.40 cents a pound, the highest finish in a month.

The gains came amid fresh concerns over dryness in central Brazil, worries which have spurred gains in soybeans futures too, for which the country's sowings window is opening, and which have gained further traction with the increased chance of a La Nina, which has a history of curbing rains in parts of the country.

Official US meteorologists on Thursday, after assessment of latest indicators, that "there is an increasing chance, about 55-60%, of La Niña during the Northern Hemisphere fall and winter 2017-18".

A month ago, it had rated the chance of a La Nina during the winter at 25-30%.

'Worrisome forecasts'

"Weather forecasts are worrisome, indicating a continuation of dry weather, sun and warm temperatures for most of the coffee belt," said Silas Brasileiro, executive president of Brazil's CNC producers' group.

He flagged a forecast from Somar Meteorologia

of dryness ahead in central coffee areas, bar "only light rain" for coastal parts, such as the Zona da Mata region of Minas Gerais, the top arabica-growing state.

Concerns were particularly acute in São Paulo and Paraná states, where "crops had an early bloom, as early as August", favoured by rains "unusual" in coming so early.

"However, without the continuation of rainfall, there is possibility of no success of these flowers," with dryness risking the blossoms aborting, rather than setting to form cherries for the 2018 harvest.

Further rounds of flowering are possible, however.

'Perfect crop off the table'

The comments echo those last week from Cooxupe, the world's largest coffee cooperative, which cautioned last week over dryness in particular in southern Minas Gerais.

And they raise a question over expectations of Brazil achieving a record 60m-bag harvest next year, as many analysts had expected.

"It would seem that the perfect crop is already off the table," said Judith Ganes-Chase, at J Ganes Consulting, flagging a "noted moisture deficit".

In the upper Mogiana region, in Sao Paulo state, "trees have defoliated that should be flush with green leaves and getting ready to blossom", she said, if flagging that "troubles in one region could be offset by better yields elsewhere".

Arabica vs robusta prices

Indeed, conditions are deemed better in the Brazilian robusta-growing areas centred on Espirito Santo, although research institute Cepea has cautioned that reservoirs have only been partially refilled from the 2015-16 drought.

The gap in expectations between arabica and robusta has been reflected in prices both in futures and Brazilian cash markets, with London's November robusta contract easing by $1 to 1$1,992 a tonne.

As of Thursday, the latest data available, Brazilian arabica coffee was worth $462.28 per 60 kilogramme bag, according to Cepea, which pegged the domestic robusta price at $397.28 per bag, amongst the lowest levels since May.

That left the arabica premium at R$65.03 per bag, up 14.2% month on month. Arabica beans, typically viewed as being of better quality, historically hold a premium over robusta beans.

By Mike Verdin

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