Coffee prices plunge on talk of Brazilian rains

Arabica futures tumbled at their fastest pace in seven months as ideas of, some, rain relief for Brazil's coffee belt eased concerns of a third successive crop being hurt by a lack of rainfall.

Arabica coffee futures for December closed down 5.9% at 125.85 cents a pound in New York, making it their worst session since early March.

The decline was attributed to forecasts of rain for Minas Gerais, Brazil's top coffee-growing state, where a lack of moisture has provoked concerns of disruption to the flowering process.

Low rainfall raising the threat of trees not blooming, or of blossoms aborting rather than setting to allow the development of cherries.

Somar, the influential Brazilian weather agency, was "talking about some change in the weather, with showers in the outlook", said Jack Scoville, at US broker Price Futures.

"You are not going to solve the problem overnight, but 0.75 inches of rain does change the situation a little bit."

'Fundamental picture unchanged'

Nonetheless, he questioned the extent of the market reaction, and whether investors selling at Friday's lows will end up "too happy" about settling for reduced prices when crop risks remain.

"I am not sure the fundamental picture has changed that much," Mr Scoville told Agrimoney.com.

In London, Carlos Mera at Rabobank noted that some other weather forecasters were sticking with a dry outlook for Brazil.

US-based weather service MDA forecast some showers ahead for southern Brazil, but said that models suggested that "dryness and heat" would continue for the next 10 days or so over Minas Gerais.

Colombia factor?

Other factors proposed by investors for the price fall include weakness in the real, which shed 1% against the dollar, lowering the value, in dollar terms, of assets in which Brazil is a major.

Furthermore, Colombia lowered the bar on quality that beans must meet before being deemed fit for export, a ruling seen as a move to support shipments at a time when El Nino-induced dryness is threatening production, but which could increase supplies on the world market.

"To facilitate the commercialisation of different qualities of coffee, the national coffee committee adopted a new resolution which permits the export of beans known as seconds or co-products," said Colombia's national coffee committee, which is formed of industry and government representatives.

However, Mr Mera suggested that simple profit-taking, potentially encouraged by technical factors, may be encouraging the price decline.

"During October, prices had just gone up and up and up," he said, flagging the threat yet that, if rains are not forthcoming in key parts of Minas Gerais, analyst downgrades to 2016 crop potential are imminent.

In London, robusta coffee for January, the best-traded contract, ended down 2.5% at $1,619 a tonne.