Coffee prices jumped 10 per cent on Tuesday to a year high on heavy buying by hedge funds and other financial investors.
The higher quality arabica bean rallied sharply on active buying, with the ICE May benchmark hitting a high of $1.5665 a pound, the highest level since January 2013.
The buying came in spite of rains in Brazil, the world’s largest producer of coffee, with forecasts of more rain to come. Dry and hot weather in January had triggered buying last month, and the benchmark has risen almost 35 per cent since the start of the year.
“Coffee was the favourite short of the last 2 years and now it’s the favourite long,” said Kona Haque, analyst at Macquarie in London.
The potential fall in the Brazilian harvest underpinned the bullish view for coffee. According to the International Coffee Organization, Brazilian coffee production for the 2014/15 harvest year is estimated to total between 46.53m and 50.15m 60kg bags.
This would mean two consecutive years of declining Brazilian output for the first time since 1977, caused by a fall in the area of production and investment due to lower coffee prices.
Output in Central America has also been hit by la roya, the leaf rust which affects coffee plants.
Nevertheless, coffee specialists point to plentiful production from Colombia, the top producers of premium ‘washed’ mild arabica. The country produced more than 11m bags in the 12 months to January, up 35 per cent from a year before.
“The current prices are telling us that there isn’t enough arabica in the world, but not a lot of people think that’s the case,” said one analyst.