June 3, 2011 / 7:17 AM / 8 years ago

ANALYSIS-Coffee faces greatest Brazil frost threat since 2000

* Lack of El Nino, La Nina, opens door to polar air masses

* Under-supplied market would jolt at firm sign of frost

* Warmer ocean since previous frosts a mitigating factor

By Peter Murphy and Marcy Nicholson

BRASILIA/NEW YORK, June 3 (Reuters) - From droughts to floods to hurricanes, commodity traders have been roiled by a record dose of almost every variety of inclement weather under the sun, save one — a coffee-curdling frost in Brazil.

But this year, just as global stocks of coffee beans dwindle to their lowest since records began, Brazil’s number may be up.

With the global weather anomalies known as La Nina and El Nino in momentary balance, experts say the risk of frost in Brazil’s main coffee region is at its highest since 2000, the last time a sharp blast of cold air from the Antarctic swept across Argentina and inflicted serious damage to some farms.

To be sure, there are reasons not to fear the worst. Warmer oceans and a hotter sun cycle have reduced the odds; and coffee plantations are not as greatly at risk as they were 35 years ago, with most growers having long abandoned the frost-prone Parana region further south, hit hard by frost in the 1970s.

But even a small risk of such a frost in the next three months could have an unusually big impact on the market, in large part because so few traders expect anything like a repeat of the 1975 chill that crippled output the next year.

“The big surprise will be if we receive a legitimate frost forecast. I think we’d have a dramatic premium added in because I think most people believe it will never happen again,” said Shawn Hackett, president of Hackett Financial Advisors Inc in Florida, specializing in agricultural commodities.

The first warning came on Monday, when temperatures were forecast to fall within two degrees of freezing in Minas Gerais’s hilly Pocos de Caldas area. Adequate humidity helped spare the region, but worse may be in store.

Cassia Beu, meteorologist at local forecaster Somar, said a number of weather patterns indicated this year had the highest frost risk since the last one in 2000, notably the neutral El Nino Southern Oscillation (ENSO).

“It makes it easier for cold masses of air to enter,” inland from the coast, she said.

That will make for a nervy three months of trading until the risk subsides by late August when the Southern Hemisphere winter nears its end. With stocks low, Brazil’s harvest will be more critical than ever for preventing a renewed spike in global coffee prices that have more than doubled in a year.

It couldn't come at a worse time for importers and roasters such as Kraft Foods Inc KFT.N and Nestle NESN.VX, with rates only just beginning to cool from a 34-year high. A pound of coffee at New York's ICE futures exchange KCN1 now trades at around $2.65, down from $3.0890 in early May. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic of coffee belt low temps r.reuters.com/gyx79r Graphic of falling world stocks: r.reuters.com/xab89r Analysis on coffee price spike: [ID:nLDE74I1JQ] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

RARE BUT RECURRING

A frost would be a blow the market can ill afford. The International Coffee Organization, ICO, says 2010/11 season global production was around 1 million bags below consumption in 2010, a shortfall made up for by running down stocks.

Coffee frosts are rare but have a knack of recurring after absences long enough to suggest they’ve gone for good.

But current weather trends have caught forecasters’ attention.

“I think there’s high potential. There’s a period at the end of July and early August that could bring some threatening cold into the region but it’s not a sure thing,” said Drew Lerner of U.S.-based World Weather Inc.

Meteorologists said a quasi-biennial oscillation (QBO), when polar air masses are pushed along faster by the jet stream current, could blast cold air towards the coffee areas if that ever-changing air current pointed northeast.

Any frost severe enough to damage trees’ branches would cut the output of next year’s high-output crop and if sharp enough, could even spoil some of the fruit from this year’s crop.

“ON EVERYBODY’S MIND”

One mitigating factor is the slowly rising temperature of the ocean, making it more difficult to reach minimums low enough for a frost, World Weather’s Lerner said, clouding the frost outlook. Another is more intense solar radiation, as the sun rebounds from a recent so-called “solar minimum.”

“Every year I think there’s a chance (of frost) then we don’t see it,” Lerner said. But he added, “It only takes one mass of cold air.”

Local forecaster Somar says frosts can be predicted with a fair degree of accuracy about seven to 10 days before they occur, which means an anxious three months ahead in the wait to see if forecasters’ worst case scenario is realized.

The last severe frost in Brazil took place in 1994, reaching top coffee state Minas Gerais and as far north as the savanna region, halving the next year’s crop, according to coffee agrometeorologist Marcelo Paes de Camargo.

Another in 2000 caused less damage but still put a significant dent in production the next year.

Producers are powerless to act when frosts occur. In desperation, some have been known to burn tires on the edge of their plantation to protect trees with warm smoke. A mist-making machine working in a similar way is available but is only suitable for smaller plantations.

Observers will have few clues to go on as winter approaches except for near-term forecasts, given the frost’s knack of defying predictions based on weather trends, like in 1994 when frost happened during a warmer El Nino cycle.

Until winter passes, the nagging doubt will linger.

“People are very confident that we’re not going to see any problem, but of course the concern is on everybody’s mind,” said Hernando De La Roche, director of Hencorp Coffee Group in Florida.

(Editing by Lisa Shumaker)

((peter.murphy@thomsonreuters.com; tel +55 61 3426 7025; Reuters Messaging: peter.murphy.reuters.com@reuters.net)) Keywords: COFFEE BRAZIL/FROST

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