Coffee Delines as Brazil May Speed Up Shipments, Dollar Gains

By Yi Tian

July 3 (Bloomberg) -- Coffee fell the most in almost four weeks on speculation drier weather will speed up shipments from Brazil, the biggest grower, and a rising dollar will cool demand for raw materials as a hedge against inflation.

Brazil's main growing regions will have ``mostly dry conditions'' during the next seven days, Meteorlogix LLC said today. That will allow farmers to collect beans after rain last month pushed back the start of the harvest, said Marcio Bernardo, a broker at Newedge USA LLC in New York.

``The weather in Brazil is favorable for the harvest in Sao Paulo and Minas Gerais'' states, said Bernardo. ``And there's no risk of frost until the middle of July.''


Coffee futures for September delivery fell 4.1 cents, or 2.6 percent, to $1.519 a pound on ICE Futures U.S., the former New York Board of Trade, the biggest decline for a most-active contract since June 9.

Coffee jumped 12 percent in the first half of this year, partly because harvest delays in Brazil tightened global supplies. The commodity fell 0.4 percent this week. Trading is closed tomorrow for the Independence Day holiday.

Stronger Dollar

A stronger dollar also put downward pressure on coffee futures, Ryan Bennett, a London-based commodities analyst at brokerage Sucden (U.K.) Ltd., said today in a report.

The dollar index, which values the U.S. currency against six major counterparts including the euro and U.K. pound, rose as much as 1.1 percent after European Central Bank President Jean-Claude Trichet signaled the ECB may keep interest rates on hold after today's quarter-point increase. A stronger dollar makes contracts more expensive for holders of other currencies.

The U.S. Department of Agriculture forecasts Brazil's harvest at 51.1 million bags, 36 percent more than last year, because trees are in the higher-yielding part of a two-year cycle. So far, shipments from Brazil have been trailing last year's pace because of the delayed harvest, which usually runs through October.

Exports from Brazil dropped 13 percent to 1.45 million bags in June from a month earlier, the country's Coffee Exporters Council said July 1 on its Web site. A growers' group said last week that no more than 8 percent of the country's beans were harvested through June 24, down from as much as 18 percent a year earlier. A bag of coffee beans weighs 60 kilograms (132 pounds).

Futures also dropped today on speculation prices had risen too high, given the increase in supply expected from Brazil this year, according to Bernardo and Jack Scoville, vice president for Price Futures Group in Chicago.

Allegations that several German coffee companies illegally fixed prices weighed on the market, too, Scoville said.

``If these companies have legal problems, we'll have issues with demand,'' Scoville said. ``This may not be a primary factor, but it certainly adds in.''

Germany is the biggest importer of Brazilian coffee.

To contact the reporter on this story: Yi Tian in New York at ytian8@bloomberg.net.