Morning Comments for October 2nd

Arabica-Coffee Futures Surge to More than 5-Month High; Cotton Falls Lack Of Brazil Rain Causes Concern For Production This Year And Next By

Leslie Josephs

Oct. 2, 2014 9:25 a.m. ET

NEW YORK—Arabica-coffee prices surged 6.7% on Thursday to the highest level in more than five months as a lack of rain in Brazil fueled concerns that production will be constrained this year as well as the next.

Arabica for December on the ICE Futures U.S. exchange rose to $2.1375 a pound, the highest since April 25 for the most actively traded contract. The contract recently traded up 5% at $2.1050 a pound.

Brazil is the source of about half of the world's arabica beans, and a severe drought early this year clipped output. Weather conditions remain drier than usual, and that has raised worries over next year's production.

"With no significant rainfall in September, an alarming situation with substantial losses for 2015 is projected," Brazil's National Coffee Council said in a note Wednesday.

Brazil's coffee-growing areas are expected to remain mostly dry until the second week of October, according to São Paulo-based forecaster Somar Meteorologia. That lack of moisture could hurt arabica trees already weakened by Brazil's worst drought in decades.

"If it remains dry, that's a problem," said Rodrigo Costa, a head of the coffee desk at brokerage Newedge.

Arabica futures prices are up 93% this year, and the sharp rise has prompted roasters including Starbucks Corp. and J.M. Smucker Co. the maker of Folgers, to raise prices for consumers.

Cotton futures turned briefly positive Thursday morning after the U.S. Department of Agriculture reported net-export sales of 226,400 bales during the week ended Sept. 25, up 45% from the previous week. Cotton for December was recently down 0.3% at 61.95 cents a pound, after reaching as high as 62.56 cents.

"Weekly export sales as of Sept. 25 were better than expectations of 100,000 to 125,000 [bales] due to large sales to Turkey, China and Thailand," said Sharon Johnson, senior cotton specialist and introducing broker for KCG Futures in Atlanta. But a record global glut is expected to continue to weigh on prices.

Orange juice for November was down 1.2% at $1.432 a pound, while December cocoa was 1.1% lower at $3,137 a ton, a more than two-week low.

Sugar for March was up 0.9% at 16.18 cents a pound.