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Coffee Prices Hit 26-Month High

The coffee market is boiling over, with prices almost doubling year to date, and analysts say it is only a matter of time before consumers get burned.

Arabica-coffee prices soared to a 26-month high in the futures market after a top merchant cut its forecast for Brazil's drought-stricken crop. Brazil produces about one-third of all coffee and more than half of the world's arabica beans, which are prized for their mild flavor and used in gourmet blends.

The forecast, by Volcafe Ltd., a unit of commodities trader ED&F Man Holdings Ltd., was the latest sign that Brazil's coffee trees haven't rebounded from some of the driest weather in decades at the start of the year. Dry weather stunts the growth of cherries, the fruit that contains the seeds that are roasted to make coffee beans.

The full extent of the damage won't be known until after the harvest ramps up in May. Volcafe cut its 2014 crop outlook by 11% from its January estimate and predicts the world will face a shortage of 11 million 60-kilogram bags of coffee beans this season.

Investors are piling into the $12.1 billion futures market, holding 40,233 bullish bets in the aggregate as of April 15, just below a six-year high hit in March, according to the Commodity Futures Trading Commission. On Tuesday, arabica coffee for May delivery shot up 15.1 cents, or 7.7%, on the ICE Futures U.S. exchange to $2.1180 a pound, the highest close since February 2012. Prices are up 91% so far this year, based on the front-month futures contract.

http://online.wsj.com/news/articles/SB10001424052702303825604579517604249104072?mod=rss_markets_main&mg=reno64-wsj