Sector Snap: analyst looks at high coffee prices

By Debarati Roy
Dec. 17 (Bloomberg) — Coffee futures surged to a 13-year high in New York on mounting concern that global supplies will trail demand.

A shortage of high-quality arabica coffee has led to “precariousness of the supply/demand balance,” the International Coffee Organization said last week. Price also climbed on demand from funds. Futures have surged 66 percent this year, heading for the biggest annual gain since 1994.

“There is a lot of fund buying,” said Rodrigo Costa, the vice president of institutional sales at Newedge USA LLC in New York. “The fundamentals are very supportive.”

Arabica coffee for December delivery gained 8.75 cents, or 4 percent, to settle at $2.253 a pound at 2 p.m. on ICE Futures U.S. in New York, the biggest gain since Nov. 18. Earlier, the price reached $2.267, the highest since June 1997. This week, the commodity jumped 7.5 percent, the most since mid-June.

Flooding in Colombia, the world’s second-largest grower of arabica beans, has threatened crops, damaged roads and delayed agriculture shipments, a U.S. Department of Agriculture unit said last week. The heavy rain from a La Nina weather pattern was forecast to last until the first quarter of 2011.

Brazil is the leading producer.

Hedge-fund managers and other large speculators increased their net-long position, or bets on New York futures, by 11 percent in the week ended Dec. 7 from a week earlier, government data show.

Robusta-coffee futures for March delivery climbed $39, or 2 percent, to $1,986 a metric ton on NYSE Liffe in London. The price reached $2,013, the highest since Nov. 10. The commodity has gained 53 percent this year.

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.

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