[LINK] "Brazil Coffee Output Set for Longest Decline Since 1965"

[rfmcdonald]

Bloomberg's Marvin G. Perez and Morgane Lapeyre share the bad news.

A prolonged drought in Brazil has already claimed about half of Jose Francisco Pereira’s coffee crop. Next year could be even worse as the country heads for the first three-year output decline since 1965.

“Everybody is praying for rain,” said Pereira, general director of Monte Alegre Coffees, a grower with 2,500 hectares (6,280 acres) based in Alfenas, Minas Gerais, that forecast this season’s harvest at 45,000 bags, down from 82,000 last year.

Production in Brazil, the world’s top grower, may drop as much as 18 percent to 40.1 million bags when the harvest ends next month, the National Coffee Council estimates, after a 3.1 percent slide last year. With damage worsening before the start of spring in the Southern Hemisphere, the council said farmers may collect less than 40 million bags in 2015, creating the longest slump in five decades.

Citigroup Inc. forecast Aug. 21 that a global production deficit may last into 2016 because of the shortfall in Brazil, which accounted for 36 percent of world supply last year. Futures that have gained more than any other commodity this year may rally 15 percent further by the end of December, to $2.25 a pound, a Bloomberg survey of 18 analysts showed. The surge is forcing buyers including J.M. Smucker Co., maker of Folgers, the best-selling U.S. brand, to raise retail prices.

“The market is vulnerable to the upside given all the problems in Brazil,” Donald Selkin, who helps oversee $3 billion as chief market strategist at National Securities Corp. in New York, said yesterday. “People are anticipating tighter supplies and are waiting for more dramatic weather developments.”