Arabica Coffee Slips With Traders Weighing Brazil Frost Risk

Arabica coffee futures have fallen from a multi-year high as traders analyse the potential of frost damaging harvests in Brazil’s top-producing country this week.

After reaching to the highest level since 2014 on Monday, September delivery futures plummeted as much as 2.6 percent. Still, from Wednesday to the weekend, more cold weather is expected in several of Brazil’s important growing regions, raising concerns about a supply shortage for Arabica beans favoured by corporations like as Starbucks Corp.

Frost in Brazil, which produces 40% of the world’s Arabica coffee, is threatening to push prices further higher, amidst larger concerns about global food inflation and rising transportation costs as economies struggle to reopen. Arabica futures have increased by 32% since July 19.

Another cold spell could wreak havoc on coffee bushes that have already been pounded by a month of harsh weather. According to a Mercon estimate, losses in Minas Gerais, Brazil’s primary coffee-growing region, might equal to 7% of the country’s output last year. Even so, given the recent increase, better-than-expected weather could put downward pressure on prices.

In a note, Alex Boughton, a coffee and cocoa broker at Sucden Financial Ltd., said, “It feels like we are in a very precarious market condition here.” He noted that another strong frost could “easily” add 15-to-20 cents to pricing over night.

By 11:09 a.m. London time, futures had fallen 0.7 percent to $2.06 a pound. They hit a new high of $2.15 on Monday, the highest since October 2014.

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