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Soybean Pricess Surge as Brazil Drought Threatens Production

February 18, 2014
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Feb. 18 (Bloomberg) -- Coffee jumped the most since 2004, soybeans reached the highest this year and sugar rallied as the worst drought in decades threatened production in Brazil, the world’s biggest exporter of the crops.

Rain in growing regions will be 75 percent less than normal in the next five days, deepening a moisture deficit after the driest January since 1954, David Streit, an agricultural meteorologist at Commodity Weather Group, said in a telephone interview from Bethesda, Maryland. The Standard & Poor’s GSCI Agriculture Index of eight commodities rose for a seventh straight day, poised for the longest streak since 2011.

Brazil’s heat wave and dry weather drained reservoirs and scorched plants. Prices for arabica coffee surged 38 percent in 2014 as production losses in the nation’s top growing state may be as much as 30 percent, the biggest farmers group estimates. Forecasters including AgRural, Agroconsult and Celeres have cut their outlook for the soybean harvest. Hedge funds are betting on more price gains for both crops.

"Brazil is such as a powerhouse in these markets, and any sort of adverse-weather event will affect these commodities in a significant way," Michael Smith, the president of T&K Futures & Options in Port St. Lucie, Florida, said in a telephone interview. "Speculators have jumped on board with this Brazilian drought.’

Arabica coffee for May delivery rose 7.3 percent to $1.5275 a pound at 1 p.m. in New York on ICE Futures U.S., after surging as much as 10 percent, the biggest intraday gain since November 2004. Prices reached $1.5665, the highest for a most-active contract since January 2013.

 

Extreme Weather

 

Extreme global weather also is threatening other crops with too much rain hampering Indonesia’s cocoa harvest and freezing temperatures may have damaged U.S. wheat. The GSCI Agriculture Index rebounded 5.1 percent this year, after a 22 percent plunge in 2013 that was the biggest since 1981. This year’s rally may boost expenses for Seattle-based Starbucks Corp., the world’s largest coffee-shop chain, and sugar costs for Krispy Kreme Doughnuts Inc.

In the past 30 days, precipitation was as little as 1 inch (2.54 centimeters) across most of Brazil’s growing regions, or 88 percent below normal, according to Commodity Weather’s Streit. Damage to coffee crops in Minas Gerais state was ‘‘more severe than imagined," Carlos Alberto Paulino da Costa, head of Cooperativa Regional de Cafeicultores em Guaxupe Ltda, known as Cooxupe, said on Feb. 13. The company is the world’s largest coffee cooperative.

 

Hedge-Fund Bets

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