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Adam Sarhan WSJ Quote: Arabica-Coffee Prices Climb to 16-Month Highs



Dry Weather in Brazil Could Reduce Global Coffee Output

Updated Feb. 19, 2014 3:58 p.m. ET

NEW YORK—Coffee prices posted their biggest two-day gain in nearly 14 years as traders and investors focused on reduced output from Brazil.
Arabica coffee, prized for its mild flavor and typically used in gourmet blends, traded Wednesday at prices last seen on Oct. 4, 2012, boosted by concerns that unusually dry weather in top-grower and exporter Brazil would crimp supplies.
Prices have climbed 55% this year, and consumers are likely to pay more for their java as roasters and coffee shops compensate for the surge. But arabica producers outside of Brazil are benefiting from the rally, after struggling with near seven-year-low prices as recently as November.
The coffee market “was almost like a spring, or a ball under water, where you hold it down and then it just pops,” said Adam Sarhan, chief executive at Sarhan Capital, a New York investment firm. “At this point, the path of least resistance is higher until [new] data emerges.”
Futures surged 23% this week, the biggest two-day gain since July 2000. The contract for March delivery ended up 12.5%, or 19.10 cents, at $1.7175 a pound on the ICE Futures U.S. exchange, while the more actively traded contract for May delivery gained 11.5%, or 17.75 cents, to $1.7260 a pound.
Producers in Central America and Colombia are seeing the difference already.
“We’re very happy,” said Henry Hüeck, president of Cafetalera los Compadres SA and Ramacafe, two farming groups in Nicaragua. “Right now, you’re starting to break even or even make a little money.”
But the most important producer by far is Brazil, which is the source of a third of the world’s coffee and more than half of its arabica. Reduced output there could lead global demand to exceed production this year.
“People are very, very worried” about the crop in Brazil, said Hernando de la Roche, senior vice president at financial services firm INTL FCStone in Miami. “This is the first time that we’ve seen a drought [of this magnitude] during January and February.”
January and February have been the driest months in Brazil in 30 years, according to Somar Meteorologia, a São Paulo private weather service. Coffee trees need at least 20 inches of rain over the first three months of the year to develop normally, but the regions have received between four and six inches so far, Somar said.
“Plantations in Brazil are enduring dry weather just when rain is needed the most for tree roots to absorb nutrients as the beans begin to grow inside the coffee cherries,” said WeatherBell Analytics, a New York meteorological consulting firm. The cherries are fruit that surrounds the seeds that are harvested and roasted for coffee beans.
Growers are likely to begin evaluating how much damage has been done at the end of this month, when the cherries are more developed. The cherries could be smaller than usual, or they could fall from the trees prematurely, due to the lack of moisture, analysts said.
Marco Figueiredo, vice president at Ally Brazilian Coffee Merchants in Plantation, Fla., expects coffee prices to rise to $2 a pound in the near term, a level last seen in March 2012.
Raw-sugar prices also advanced Wednesday as Brazil’s dry weather has reduced production forecasts for that crop as well. Brazil is the No. 1 grower and exporter of the sweetener.
Raw sugar for delivery in March on the ICE Futures U.S. exchange ended 1.9% higher at 16.46 cents a pound. The contract for delivery in May closed 2.1% higher at 16.85 cents a pound, the highest settlement since Dec. 2.
In other markets, cotton for delivery in March closed down 1.1% at 86.97 cents a pound, and the May contract ended 1.8% lower at 87.91 cents. March-delivery cocoa settled at $2,909 a ton, down 0.6% on the day, while the May contract settled 0.8% lower at $2,934 a ton. Orange juice for delivery in March ended down 0.2% at $1.4340 a pound, and May closed at $1.4405 a pound, down 0.3%.
—Leslie Josephs and Jeffrey T. Lewis contributed to this article.