Arabica Coffee Futures Hit 14-Year High

NEW YORK—Arabica coffee futures hit their highest price in 14 years on concerns that upcoming harvests won't be enough to supply the world's growing consumption of the beverage.

Coffee for July delivery rose 1.8% to settle at $3.0510 a pound on the IntercontinentalExchange.

Prices for mild washed arabica beans, prized by coffee drinkers for the rich flavors they produce, have been climbing steadily for the past year. Supplies have been clipped by poor harvests among some major producers, while demand for coffee is growing, particularly in emerging markets.

Now the market is focused on Brazil. The world's largest coffee producer is about to enter an off-cycle harvest, a one-year period when trees produce lower volumes of fruit, fueling more worries that global demand will outpace supplies.

On Monday, Kraft Foods Inc., the maker of Maxwell House and Yuban coffee, said it plans to invest $200 million in Brazil, a sign that big corporations are betting that the South American country's economy will continue to expand and that demand for their products from Brazil's nearly 191 million people will also rise.

On the supply side, Brazil expects to produce about 43 million 60-kilogram bags in the 2011-12 harvest, which begins in July, according to the Agriculture Ministry. This is down from a record 54.6 million-sack harvest in the previous cycle.

The combination of potentially high demand and low supply drove July coffee-futures prices to $3.0720, the highest price since May 1997.

"We're just in a positive trend, and it'll take a lot for that to turn it around," said Alonso Tomas, a trader at INTL FCStone.

Light trading volume due to U.K. holidays on Friday and Monday also contributed to the sharp moves in the coffee market.

"The air is thin up here," said Judy Ganes-Chase, an independent coffee analyst. "It can get more more volatile as a result."

Coffee futures hit $3.18 a pound on May 29, 1997, and some analysts say prices could break that record this month, but not without seeing some profit-taking along the way.

"The target I have on my charts is $3.0980/lb. for new resistance," said Rodrigo Costa at brokerage Newedge. "The market can go higher in two days and you're there."

(Source: http://online.wsj.com/article/SB10001424052748704436004576299100140312440.html)