May 28th, 2004 (Bloomberg) -- Coffee futures in New York soared 18 percent this week, the biggest gain in more than four years, as speculators increased purchases at the beginning of winter in Brazil, the world's largest grower.

Hedge-fund purchases increased amid forecasts for colder weather to reach southern growing areas of Brazil. Forecaster Meteorlogix LLC said temperatures will start to warm next week. Coffee futures have climbed 41 percent in the past year as Brazil's output fell following a record crop last year.

``It's the winter season in Brazil, and the funds are popping back in the market,'' said Sean Starke, a coffee trader at Coffee America USA in New York.

Coffee for July delivery rose 5.6 cents, or 7 percent, to 85.55 cents a pound on the Coffee, Sugar & Cocoa Exchange in New York after reaching 86.5 cents, the highest for a most-active contract since October 2000. This week's gain was the biggest since mid-October 1999.

The low temperature in Brazil's growing areas this morning was 43 degrees Fahrenheit (6 degrees Celsius) and is expected to exceed 50 degrees next week, said Michael Palmerino, a meteorologist at Meteorlogix, a Lexington, Massachusetts-based forecaster.

``I think people are probably positioning'' in case of a freeze this winter, Palmerino said. ``If nothing happens, everyone will bail out by Aug. 1.''

The frost season in Brazil usually runs from mid-June to the end of the July with the earliest cold snap recorded in May 1979, he said.

`Certainly Cold'

``It's certainly cold on my farm but not to the level where it's going to damage the coffee,'' said Luiz Hafers, who has a farm producing 6,000 bags of coffee a year in Ribeirao Claro on the border of Sao Paulo and Parana states. ``The cold weather has really just been a trigger for releasing pent-up demand.''

Starbucks Corp., the largest U.S. coffee-shop chain, may face a shortage of premium quality coffee to keep pace with store expansion plans in coming years.

``Long term, we have concerns the supply will not be sufficient for our premium coffee needs,'' Alain Poncelet, head of Starbucks Coffee Trading Company, said in an interview in Lausanne, Switzerland. ``We will need much more high quality coffee in future.''

Starbucks buys all of its beans, grown in Latin America, the Pacific region and East Africa, through its Lausanne-based trading subsidiary.

To contact the reporter on this story:
Claudia Carpenter in New York at ccarpenter2@bloomberg.net.

To contact the editor responsible for this story:
Patrick McKiernan.

Last Updated: May 28, 2004 15:47 EDT