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Coffee Futures Rise Sharply

October 8, 1997

Coffee futures prices rose sharply Wednesday after Mexican producers reported that heavy rains from Hurricane Pauline had severely damaged the new crop. The storm threatened to delay shipments of new supplies.

On other markets, corn and soybean prices rallied on continued fears that world demand for the American crops could quickly reduce inventories, even if there is record production. Precious metals rose after Federal Reserve Chairman Alan Greenspan’s comments caused turmoil on financial markets.

The coffee futures market shrugged off Colombia’s decision Tuesday to slash the price on its upcoming exports after the Mexican Coffee Producers Federation said that country’s production estimates could be cut by as much as 25 percent because of Hurricane Pauline.

The Pacific storm, with sustained winds of 125 mph, was expected to reach Mexico’s shores by late Wednesday. Heavy rains already had knocked mature coffee beans off trees in the southern Chiapas region, where 32 percent of the country’s coffee is produced, said federation president Alfredo Moises Ceja.

Efforts to salvage the gourmet arabica beans have been hampered by a small labor pool that has been unable to work in the rains. ``Now it looks like we will be unable to save very much of the loss,″ he said.

The losses could grow if Pauline strikes the Oaxaca region on the coast, which provides 19 percent of Mexican production. Beans in that region also are mature, and because the crop stands at a lower elevation, the beans are vulnerable to wind and rain damage.

Mexican production, at about 5 million bags, is behind only Brazil, Colombia and Indonesia.

The storm damage comes at a bad time. Roasters are gearing up for the peak consumption season, causing inventories in exchange-approved warehouses to fall sharply, now standing at three-month lows. Stocks of arabica beans fell by 10,563 bags to 56,286 bags Wednesday. Each bag weighs 132 pounds.

Arabica coffee for December delivery rose 4.85 cents to $1.67 a pound on the Coffee, Sugar and Cocoa Exchange in New York.

Corn and soybean futures prices rallied on the Chicago Board of Trade as expectations of strong demand dampened concerns about large U.S. production.

Soybean futures shook off early weakness tied to rumors that China had sold back several large cargoes of U.S. soybeans to take advantage of the recent runup in prices.

Soybeans have benefited from concerns about supply availability in the face of heavy world demand. Farmers have harvested more than 1 billion bushels of soybeans so far, but have mainly refused to part with them until they get higher prices.

Corn futures prices rose for the fifth consecutive session on continued concern that China, the world’s second-largest corn producer, will become an importer this year because of a drought-reduced harvest. China has yet to make a formal announcement that it is halting exports, but the market reacted to persistent talk that that was the case.

December corn rose 3 cents to $2.82 3/4 a bushel; November soybeans rose 3 1/4 cents to $6.67 1/4 a bushel.

Precious metals rose sharply on the New York Mercantile Exchange after Greenspan warned that inflationary pressures on the economy are almost certain to emerge at some point unless demand slows markedly, causing the stock and bond markets and the dollar to tumble.

December gold rose $2 to $335.30 an ounce; December silver rose 2.80 cents to $5.23 an ounce.

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