SOFTS-Coffee stays near two-year peak, underpinned by drought fears
* Analyst sees Brazil coffee output down in 2014/15
* Coffee-growing areas of Minas Gerais hard hit by drought
By David Brough
LONDON, March 4 (Reuters) - Arabica coffee futures stayed close to the prior session's two-year peak on Tuesday, supported by concerns about damage to coffee crops in top producer Brazil from a prolonged drought, though trade was choppy.
Prices have surged 75 percent so far this year, fuelled by concerns over the impact of the unseasonably dry weather in Brazil on coffee beans in the coming 2014/15 crop.
"Markets are taking a 'worst case' view of the situation, which does leave some downside potential if the damage turns out to be not as bad as expected," said Tom Pugh, commodities economist with Capital Economics in London.
ICE second-month arabica futures jumped almost 2 percent to a session peak of $1.9760 per lb, just below Monday's two-year high of $1.9780 and within sight of the psychologically important $2 level, before falling back in a technical correction to trade down 1.15 cents or 0.6 percent at $1.9230 per lb as of 1252 GMT.
Analyst Stefan Uhlenbrock of F.O. Licht forecast that coffee output in Brazil would fall by around 5 million 60-kg bags to 48 million bags in 2014/15.
"Even if there is a deficit in '14/15 there is not yet the danger of the world running out of coffee because of the stocks accumulated during the surplus period," Uhlenbrock said. Continuación...