COMMODITIES : Dry Weather in Brazil Boosts Coffee Futures

Prices of coffee futures rose sharply for the second straight day Wednesday on fears that a dry spell in Brazil could lengthen into a drought in the world’s largest coffee-producing nation.

On other markets, cocoa futures were sharply lower, energy futures were mixed, precious metals gained, livestock and meat advanced and grains and soybeans were mixed.

The Brazilian drought talk that has driven up coffee futures prices on New York’s Coffee, Sugar & Cocoa Exchange may be premature, but there was little other information to trade on Wednesday, analysts said.

Fears of drought damage have underpinned a dramatic rally in the coffee market in the past month. Coffee for delivery in September has risen more than 21 cents a pound since falling to about $1.08 in early August.

But it’s still fairly early to be worried about drought damage to the Brazilian crop, said Sandra Kaul, an analyst with Shearson Lehman Hutton Inc. in New York.

Flowering Stage Near

“To put this in perspective, in 1985, when drought trimmed the crop back sharply, people had not begun to focus on the drought until the second or third week of October and it wasn’t until Thanksgiving that they began noting damage to the crop,” she said.

But Kim Badenhop, an analyst with Merrill Lynch Capital Markets Inc. in New York, said conditions were becoming a little more critical as the coffee crop approaches its flowering stage.

Badenhop said Brazil had an early, dry spring this year, resulting in unusually low soil moisture.

Brazilian weather conditions could continue to determine the market’s direction before the Sept. 19 opening of the International Coffee Organization’s semiannual meeting in London.

Coffee settled 3.32 cents to 3.79 cents higher, with September at $1.295 a pound.

Cocoa futures skidded to new 12 1/2-year lows on the Coffee, Sugar & Cocoa Exchange as producer- and consumer-nation members of the International Cocoa Organization, meeting in London, began tackling issues that threaten the existence of the price-support group.

Cocoa was $20 to $28 lower, with September at $1,173 a ton.

Oil futures finished mixed on the New York Mercantile Exchange, surprising many who had expected a continuation of Tuesday’s sharp selloff.

Cooler Heads Prevail

Reports that Saudi Arabia, Kuwait and the United Arab Emirates had increased their crude oil production last month caused panic selling of futures Tuesday on fears that the Organization of Petroleum Exporting Countries was in complete disarray.

But cooler heads prevailed Wednesday, said Michael Rothman, senior energy analyst with Merrill Lynch Capital Markets Inc. in New York.

“Almost everybody in OPEC . . . is producing at their quota, so you’re not seeing a widespread erosion of discipline,” he said.

West Texas Intermediate crude oil settled 8 cents lower to 13 cents higher, with October at $14.16 a barrel; heating oil was 0.09 cent lower to 0.07 cent higher, with October at 41.63 cents a gallon, and unleaded gasoline was 0.13 cent lower to 0.10 cent higher, with October at 42.59 cents a gallon.

The steadying of oil prices and the weakening of the dollar contributed to a modest rally in precious metals futures on New York’s Commodity Exchange, analysts said.

Gold settled 70 cents to $1.40 higher, with October at $430.20 an ounce; silver was 6 cents to 6.1 cents higher, with September at $6.546 an ounce.

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