Coffee Futures Enter Bull Market as El Nino Pinches Supplies

Coffee futures, mired in bearish territory for most of 2015, entered a bull market on Friday as adverse conditions from El Nino threaten to shrink output in Brazil and Colombia, the top producers of premium arabica beans favored by Starbucks Corp.

On ICE Futures U.S. in New York, arabica coffee for May delivery rose 1.3 percent to settle at $1.343 a pound at 1:31 p.m. The price has gained 20 percent from a January closing low, the threshold commonly used to define a bull market.

Crop estimates from some analysts for Brazil, the top grower, and Colombia, the second-biggest, are falling after the El Nino weather pattern brought dry conditions and exacerbated the spread of plant disease. In 2014, futures soared 50 percent as drought ravaged Brazil. Inventories monitored by ICE Exchange have slumped to the lowest November 2011.

“Carryover inventory from last year was already very low and of poor quality” in Brazil, Marco Figueiredo, a partner at Ally Brazilian Coffee Merchants, said Friday in an interview at an industry conference in Coronado, Calif. “And you also have Colombia having issues with the drought and disease,” indicating the mid-crop harvested from the second quarter ”may be a big disappointment,” he said.

The Brazilian real has rallied against the dollar in March, eroding the appeal of exports priced in the greenback.

Before this month, the dollar’s advance spurred Brazilian producers to accelerate coffee sales, depleting inventories as adverse weather started to constrain production this year, Dub Hay, the co-founder at Intelligent Coffee Insights, said Friday in an interview at the industry event. The “truth is starting to come out,” and global supplies will trail estimates by many analysts, said Hay, who previously worked at Starbucks in a senior role on the procurement team.

Arabica’s premium to robusta-coffee futures in London rose 1.1 percent to 67.08 cents a pound, the highest since Feb. 17, 2015. This week, the price jumped 9.8 percent, the most since Jan. 1. It climbed for the fifth straight week, the longest rally since April 2014.

Arabica is grown mainly in Latin America and brewed by specialty companies including Starbucks Corp. Robusta beans, used in instant coffee, are harvested mostly in Asia and parts of Africa and South America.

To contact the reporters on this story: Marvin G. Perez in New York at mperez71@bloomberg.net, Melissa Mittelman in New York at mmittelman@bloomberg.net. To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Patrick McKiernan, Robin Saponar

By: Marvin G. Perez and Melissa Mittelman

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