Coffee futures soared 10% on Thursday, with prices posting their largest single-session gain since early 2014 and their highest settlement in more than six years, as drought and frost threaten coffee crops in Brazil, the world’s largest coffee producer.

“Coffee is up this week due to unusually heavy frost in Brazil,” said Sal Gilbertie, president and chief investment officer at Teucrium Trading. “Vietnam and Brazil have been having problems here and there, which had coffee supplies running a touch tight going into this year’s Brazil frost season,” he told MarketWatch.

July is when coffee trees are flowering and “vulnerable” in Brazil,” he said. July is always a risky month for frost in that country, but “the market’s worst fears have been realized this year.”

Brazil needed a good crop to “buffer somewhat low coffee supplies, and this frost event has eliminated the possibility of rebuilding coffee supplies for another year,” said Gilbertie. “The economy is waking up from COVID and needs more coffee, but the weather is definitely not cooperating in Brazil.”

The most-active September coffee futures contract KCU21, +0.70% KC00, +0.70% rose 17.7 cents, or 10%, to settle at nearly $1.94 a pound on the ICE Futures U.S. exchange. It trades around 20% higher for the week, feeding a month-to-date climb of 21%, according to Dow Jones Market Data. Prices settled at their highest since November 2014.

“Frost and potential for future La Niña weather events poses a risk in Brazil’s key coffee growing regions in what’s expected to be an ‘on year’ for production,” said John Caruso, senior asset manager at RJO Futures, explaining that on years versus off years are “in accordance with expected production levels based on the trees’ growing cycles.”

The moves for coffee “started with the shipping container shortage back at the beginning of the year,” Caruso told MarketWatch. The shortage, blamed at least in part to changes in the market from the effects of the COVID-19 pandemic, led to higher costs to transport many commodities.

“The negative supply side fundamentals have snowballed from there,” said Caruso. “Next year is supposed be considered an ‘on year’ for production” — and the market has already been dealing with very dry conditions, which “leaves the margin for error in future weather events at basically zero,” he said.   

There’s speculation of a high probability of having the lowest production levels during an “on year” in the last 6 years, said Caruso. Coffee prices have climbed to their highest levels since 2014 and that year, prices climbed to a high around $2.25 a pound.

Caruso expects coffee prices to “test these levels, if not take them out.”  

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