Coffee Tumbles Most in 10 Months as Brazil Frost Concerns Ease

© Reuters. Coffee Tumbles Most in 10 Months as Brazil Frost Concerns Ease

(Bloomberg) -- Arabica coffee fell the most since September, paring a monthly surge as concerns eased that severe weather will further damage crops in top shipper Brazil.

Frost overnight reached about 80% of south Minas Gerais, the country’s top producing region, but the impact was less than feared, according to Drew Lerner, president of World Weather Inc. The area may get “patchy frost” Saturday and Sunday. Most sugar and citrus areas were spared the worst readings, and any impact was probably localized, Lerner said.

“Any losses from today’s event will be very limited,” said Carlos Mera, head of agricultural research at Rabobank International. “However, we still see some potential for frosts in the coming three days.”

Even with Friday’s drop, the risk persists that consumers will see higher coffee prices at cafes and supermarkets at a time when global food prices in general are on the rise. A recent cold snap in Brazil is a fresh blow to crops strained by recent drought and the worst frost seen in two decades. Freezing weather could squeeze global coffee supply for years, as it is particularly harmful for young trees.

Arabica coffee for September delivery tumbled as much as 7.3% to $1.821 a pound, heading for a fourth straight loss. The price is still up about 14% in July and almost 60% in the past 12 months after drought last year and three frosts so far this season cut 2021 output and curbed the outlook for 2022-23.

Trees in south Minas have been “affected significantly, and will struggle to recover for next year’s crop,” Lerner. The stress will be very high, it hasn’t been this cold in many, many years and the ground is already dry.”

Dry conditions makes it more critical for the timely arrival rains by September, which could be delayed by La Nina’s return, he said.

“Brazil’s upcoming 2022/23 output has clearly been reduced by this month’s cold weather, so traders may use a sizable near-term pullback for a fresh opportunity to establish long positions,” according to the Hightower Report in Chicago.

©2021 Bloomberg L.P.