Brazil setbacks spur jump in coffee, sugar futures

by Agrimoney.com

Brazilian setbacks spurred jumps in prices of both sugar and coffee futures, which headed a better day for farm commodities after sell-offs of the last two weeks.

Crop futures were firm across the board on Tuesday, helped by improved appetite for risk assets which was also reflected in a decline in the dollar, which fell 0.5% against a basket of currencies.

Gains of 1% in Chicago grains were also spurred by a reluctance by investors to sell ahead of key reports on US grain inventories and sowings due on Thursday.

However, coffee added more than 2% in New York, on reports of frost in Brazil, where data showing surprisingly weal sugar output sent prices of the sweetener up 5% to a three-month high of 29.38 cents a pound at one point.

'Brazilian Clarence Beeks'

Unica, the cane industry group, said that sugar output in Brazil's Center South region - which produces some 90% of sugar in the top producing country – had fallen by 14% year on year in the second-half of June.

Crop prices as at 16:30 GMT Sugar: 29.20 cents a pound, +5.0%, (New York) Coffee: 256.75 cents a pound, +2.6%, (New York) Corn: $6.68 a bushel, +1.1%, (Chicago) Wheat: $6.31 ½ a bushel, +1.4%, (Chicago) Prices for July contracts

Data two weeks ago had signalled that Brazilian output was recovering after a weak start blamed on wet weather.

The data confirmed market speculation of a bullish report, which prompted Nick Penney at Sucden Financial to note speculation of a "a Brazilian Clarence Beeks out there", a reference to the character in the film Trading Places who trades secret information on the orange juice market.

"There has been a great deal of short-covering. Telephone lines are buzzing with questions regarding delivery intentions against the July contract."

At Standard Chartered, Abah Ofon also noted, following a three-continents tour of investors, that sentiment was "particularly bullish" on sugar, in part because of the sweetener's use in making biofuels - and the prospect of the US removing tax perks on corn-based ethanol.

Cold talk

Coffee was spurred by reports of frosts in at least two parts of Parana.

Typically, frost damage hurts coffee plants by damaging leaves, so hindering trees ability to grow coffee cherries, meaning it is next year's harvest which would be most badly affected.

Indeed, coffee for July delivery next year rose 2.8% to 266.95 cents a pound, outpacing the 2.6% rise to 256.75 cents a pound in the soon-to-expire July 2011 lot.

Parana vs Minas

Brazilian frosts have a history of supporting coffee prices, notably after a 1975 freeze, which ultimately sent futures to a record high of 337.50 cents per pound. Prices rallied in 1979 too following frost.

However, many plantations have been moved to less frost-prone areas, such as Minas Gerais, since these events.

"It is when it gets cold in Minas that you start the real worrying," Jurgens Bauer at PitGuru said.

"They don't produce as much coffee in Parana, not like they used to."

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