"The weather in Brazil is dry, dry, dry,'' Jeff Cooper, an analyst at Ambrian Commodities Ltd in London, said by phone today. The market is "all weather driven.''
The price of robusta beans, used to make espresso and instant coffee, has gained more than 46% in a year, threatening to crimp profit for companies including Nestle SA, the world's largest food company. Prices for agricultural products such as wheat and soybeans have also jumped.
Robusta for November delivery, the most actively traded contract, rose US$85, or 4.1%, to US$2,150 a metric tonne on the Liffe exchange, the highest since June 1997. It had a weekly gain of 12%.
A total of 17,383 contracts traded, compared with an average of 8,740 contracts for the contract closest to delivery over the last month. The November contract traded almost 16% higher than the January contract, the next closest one, reflecting concerns about supply in the next several weeks.
Global coffee exports in August fell 13% from a year ago as shipments declined from Brazil and Vietnam, the International Coffee Organisation said yesterday.
"People are being squeezed on the front-month contract,'' Ralp Hawes, an analyst with London-based commodities broker Sucden (UK) Ltd, said in an interview today. Trading of the front-month contract ends November 30, with the first delivery set for November 1. Investors and traders rolled over their positions and those who were short, meaning they had bet prices would fall, are buying contracts, Hawes said.
Open interest on the November contract, meaning contracts that haven't been closed, liquidated or delivered, stood at 68,306 today.
Hedge-fund managers and other large speculators increased their net-long position in New York coffee futures in the week ended October 2, according to US Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 38,818 contracts on the New York Board of Trade, the Washington-based commission said October 5.
`Prolonged Rain'
Coffee may be headed for a "sharp correction,'' Ambrian's Cooper said. " You get the merest hint of prolonged rain'' in Brazil "and they'll hit the exit button.''
Vietnam, the world's biggest robusta grower, will probably post a 3.2% drop in production in the next crop year, Vietnam Coffee and Cocoa Association Chair Van Thanh Huy said last month.
Fortis, Belgium's biggest financial-services company, on September 28 cut its forecasts for supply surpluses of arabica and robusta coffee because of stronger-than-expected demand.
The market for arabica beans, used by coffeehouse operators such as Starbucks Corp., will have a surplus of 1.49 million bags in 2006-07, the bank said in a joint report with VM Group. That's about 300,000 bags fewer than forecast in August.
The anticipated surplus for robusta beans was cut by about the same amount to 1.09 million bags. One bag weighs 132 pounds.