Coffee futures extended gains in New York, and set a fresh two-year high in London, as worries over “huge supply concerns” in top producer Brazil for 2017 added to worries over the newly-started harvest in Vietnam.
Arabica coffee futures for December, which in the last session closed at the highest for a spot contract in eight months, added a further 0.6% to stand at 158.00 cents a pound in early deals in New York.
London-traded robusta coffee futures for January, the best-traded contract, stood 0.7% higher at $2,123 a tonne, earlier touching $2,126 a tonne, the highest for a nearest-but-one lot since October 2014.
Arabica prices have shot up 40% since lows at the beginning of the year, while robusta prices have soared 55%.
Coffee vs cashews
The price surge has been triggered by fears over supplies underlined on Friday by the International Coffee Organization, which flagged potential setbacks to forthcoming harvests in Colombia, Indonesia and Vietnam – three of the world’s four biggest producing countries.
Drought conditions in Vietnam, the largest robusta producer, have led the crop down 11% this year, according to Global Coffee Monitor, the Agrimoney.com specialist coffee publication, with other commentators forecasting weaker output too.
The country’s worst drought in three decades is also leading farmers in Vietnam’s Central Highlands to consider grubbing coffee tree in favour of other crops, such as cashews, which are more economic in their use of water.
‘Huge supply concerns’
Top grower Brazil, meanwhile, is expected in 2017-18 to record an “off” year in its cycle of higher and lower production years.
And such ideas have only been enhanced by dry weather which has threatened blossoming in both arabica and robusta-growing regions.
“More rainfall is needed, especially since it’s the flowering stage,” said Shweta Upadhyay analyst at Global Coffee Monitor, with the current blossoms forming the basis of the 2017 crop.
“There are huge supply concerns in Brazil for 2017.”
‘Markets have over-reacted’
However, at Rabobank, senior commodities analyst Carlos Mera took a more cautious line over production setbacks saying that while drought conditions are a concern, it is too early yet to inject too much risk premium into prices.
“It remains to be seen if the dry conditions in Brazil will cause the flowers to drop to the ground,” he said, adding that the market have “overreacted”.