The coffee market continues to see gains as prices jumped to its highest in over two years on Tuesday, following the drought damage in Brazil which prompted Volcafe to reduce its outlook for coffee in Brazil. Brazil produces and exports over one-third of the world’s coffee and more than half of the world’s Arabica beans.
The forecast made by Volcafe, a unit of commodity trader ED&F Man Holding Ltd, was an indication that Brazil’s worst drought in decades damaged coffee trees earlier this year and Arabica beans production is expected to be 18% lower than estimated, according to a report. Coffee futures climbed 8.3% higher, boosting volatility to the highest since 2000.
“People are realizing every day that there’s damage, and that the losses will be hard to quantify,” Hernando de la Roche, a senior vice president at INTL FCStone, said in a telephone interview. “Traders are jittery because of the uncertainty about the Brazilian harvest and what it would mean to world supplies.”
Arabica-coffee for July delivery climbed 7.1% to $2.134 a pound on Tuesday on the ICE Futures US exchanged, the highest since February 2012.
Global harvest is expected to drop by 11 million bags 60-kilogram bags of coffee beans this season, according to estimates made by Volcafe. Volcafe also cut its crop outlook for this year by 11% from its January estimates.
The Arabica premium to robusta climbed 13% higher to $1.1561 a pound, the highest since February 2012, while Robusta rose 0.9% to $2,156 a metric ton on NYSE Liffe in London at the time of writing.
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