Coffee prices suffer a stiff jolt

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Care for some volatility with your morning coffee?

Thanks to the ongoing drought in Brazil, the world's leading coffee producer and exporter, coffee prices and futures hit multiyear highs this week.

Part of the problem is that the previously forecast rains, expected to bring relief to the coffee-growing regions in central Brazil, have failed to materialize. And this lack of rain comes at a crucial time in the growing cycle for the nation's coffee crop.

"The charts last week said we were supposed to see a lot of rain on October 13," an unnamed commodities analyst told Britain's Agrimoney.com on Monday. "That isn't there any more. The charts look very different."

And Paul Markert, senior meteorologist at MDA Information Systems in Maryland, told CBS MoneyWatch that rainfall in Brazil's coffee growing region should remain below normal for the next week two weeks and is expected to remain that way in November.

Brazil is the world's leading producer of arabica beans, the pricier coffee sold in many gourmet cafes, rather than robusta, which is used in a lot of instant coffee. Analysts say the Brazilian drought has forced arabica prices to nearly double this year.

The continuing uncertainty over the size of the Brazil's coffee harvest has led to a lot of speculative activity, especially because coffee exports from Brazil have "remained consistently high" this year, according to the International Coffee Organization (ICO).

The ICO notes those high export levels, combined with expectations of a smaller coffee crop, "suggest that stocks in Brazil will be heavily drawn down this year," which will in turn put additional strain on other coffee producers to keep up with international demand.

And there appears to be a mixed bag of news from those other major coffee producers. The Colombian Coffee Federation says next year's harvest could be the nation's biggest in nearly 20 years. But Vietnam, the world's largest producer of robusta, expects its 2014-15 production to be down by 10 percent.

No wonder commodities traders are waiting anxiously for estimates on the projected size of Brazil's 2015-2016 coffee crop.