Arabica coffee futures on ICE hit its highest level in nearly two months on Friday, helped by a strengthening Brazilian real and by signs demand is recovering just as supplies from Brazil are expected to fall short. Raw sugar also hit its highest level since late February,above 17 cents/lb.

July arabica coffee was up 2.5 per cent at $1.3955 per lb, after peaking at $1.4015, the highest since early March. “We adjust our 2021/22 production estimates down to 164.8million bags on further weather risks in Brazil, Colombia and Indonesia. With demand estimate of 173.1 million bags, we expect a global deficit of 8.4 million bags,” said Citi.The bank upgraded its 6-12 month price forecast by 0.05cents/lb to $1.40/lb. The Brazilian real hit a 1-1/2 month peak versus the dollar on Thursday, deterring farmers in the world’s top coffee producer from selling by lowering returns in local currency terms.

Nestle reported its strongest quarterly sales growth in 10 years on Thursday.

Coffee largest contributor

Coffee was the largest contributor to sales growth, with Nespresso sales up more than17 per cent. July robusta coffee rose 1.1 per cent to $1,423 a tonne. Raw sugar prices for May futures were up 0.8 per cent to 17.06 cents per lb, after peaking at a 1-1/2 month high of 17.08 cents. Dealers said sugar remains well supported, with a diminished crop outlook in Brazil and the European Union.

Citi lowered its 2021/22 sugar surplus forecast to around 2.9 million tonnes, 22 per cent less than its March estimate, primarily due to crop downgrades in Brazil. The bank sees second quarter prices averaging 16.2 cents/lb.