Brazil’s Dry Spell Affects Coffee and Sugar Prices

In the commodity space, Brazil is one of the major players in global agricultural production. Roughly 20% of the Brazilian workforce is engaged in agriculture, and more than a quarter of the country’s export earnings come from agricultural exports. Because of its dominance in the market, however, any shift in local crop conditions and climate can have significant impact on agricultural prices [for more agriculture news and analysis subscribe to our free newsletter].

Several key regions of Brazil are currently experiencing abnormally dry weather. The center-south region of Brazil, which includes São Paulo state and the states of Minas Gerais and Goais, has seen rain fall totals dip 37% below the normal for December, and have seen only half the normal rainfall for January. In particular, rainfall in Minas Gerais, the top coffee-producing state, was 60% below normal in January. This time of year is crucial for both coffee and sugar production, as both are supposed to be in the period of most growth.

Coffee and Sugar Futures React

Over the trailing two-month period, the near month coffee futures contract (March 2014) has surged more than 33%. In just the past week, the contract has risen roughly 22% [see also Four Little Known Factors Driving the Price of Coffee]:

Coffee

Near month sugar futures contract (#11 March 2014) have also risen: over the trailing one-week period, the commodity has gained nearly 8%. The contract also saw a surge in trading volumes on February 4th, as weather reports weighed heavily on the market.

sugar

What to WatchCoffee

Besides paying close attention to sugar and coffee futures as well as weather reports, investors should also keep an eye on several noteworthy companies and ETFs:

Sugar Plays

  • iPath Dow Jones-UBS Sugar Total Return Sub-IndexSM ETN (SGG)
  • Teucrium Sugar Fund (CANE)
  • iPath Pure Beta Sugar (SGAR)
  • Imperial Sugar (IPSU)
  • BIOSEV SA (BSEV3) *Brazil

Coffee Plays

  • iPath Dow Jones-AIG Coffee Total Return Sub-Index ETN (JO)
  • iPath Pure Beta Coffee (CAFE)
  • Cia Cacique de Cafe Soluvel (CIQU3) *Brazil

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Disclosure: No positions at time of writing

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