Brazilian Rains, Real Jolt Sugar, Coffee Markets

(Wall Street Journal) – Sugar and coffee prices got a jolt Monday when forecasts for rain in Brazil hyped expectations of a robust crop, adding to fears of abundant supplies in the market.

Contracts for both crops have been on a months long slide—in sugar’s case, because of concerns about a global glut of supply, and in coffee’s because the market is coming off a more-than-four-year high set last autumn. But on Monday, the contracts came under pressure for the same reason—expectations of rains in Brazil, the world’s top producer of both crops.

Meteorlogix said light showers and normal temperatures were expected this week in Brazil’s coffee-growing regions and “episodes of showers and thundershowers and cooler temperatures last week eased stress on developing” sugar cane and coffee crops. Brazil supplies about one-third of the world’s coffee and 40% of its sugar.

Arabica coffee for the most actively traded May contract fell 3% to settle at a one-year low of $1.4825 a pound on the ICE Futures U.S. exchange. Raw sugar prices fell 1.3% to 14.13 cents a pound, its lowest closing price in five months.

“The weather conditions in Brazil are fantastic right now. The drought ideas about coffee trees being permanently damaged were so overblown,” said James Cordier, president of OptionSellers.com in Tampa, Fla. “Growing conditions are excellent, and the price is showing just that.”

Last year, parts of Brazil suffered the worst drought in decades. The severe dry weather crimped production of arabica, a type of coffee prized for its mild flavor, and raised worries about prolonged damage to the trees.

Lower coffee prices haven’t yet trickled down to consumers. Chris Narayanan, head of agriculture commodities research at Société Générale in New York, said major commercial market participants such as roasters have been buying at low prices and hedging future price risks. However, “they tend to react quicker when prices are rising than when they are falling,” Mr. Narayanan said.

Another factor weighing on both markets is weakness in the Brazilian real. The dollar has gained 7.3% against the real this month, including 0.3% on Monday. A falling real incentivizes exports, further adding to global supplies. And for sugar, the market is continuing to feel ripple effects from a decision announced last week by India’s government to subsidize sugar exports.

“There is a huge amount of cane available to produce more sugar,” said Michael McDougall, a senior vice president at brokerage Newedge.

In other markets, cocoa prices notched their 14th consecutive session gain, ending above $3,000 a ton for the first time in four months. Cocoa touched a one-year low in January amid concern about weak demand and oversupply after Ivory Coast, the world’s top producer, grew a record crop last year.

Cocoa for May, the most actively traded contract, rose 0.7% to $3,001 a ton. The May cotton contract eased 0.7% to settle at 64.20 cents a pound, and frozen, concentrated orange juice for May fell 3.6% to settle at $1.26 a pound, a three-month low for the most actively traded contract.