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Coffee prices surge as frosts damage Brazilian trees

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By Nigel Hunt and Marcelo Teixeira

LONDON/NEW YORK, July 26 (Reuters) - Arabica coffee prices surged on Monday to their highest in more than 6-1/2 years as top producer Brazil faced the prospect of crop-threatening frosts for the second week in a row.

Coffee trees are extremely sensitive to frost, which can cause severe damage and even kill trees completely.

Preliminary estimates from the Brazilian government's food supply agency Conab at the weekend said that last week's frosts had affected 150,000 to 200,000 hectares - about 11% of the country's total arabica crop area.

"This marks the first time since 1994 that the country has experienced such a weather event," coffee trader I & M Smith said in a market update.

Arabica coffee futures prices on ICE rose sharply on Monday, with the September contract climbing to a peak of $2.1520 per lb, up more than 13% from Friday's close and the highest for the front month since October 2014.

"The extent of the damage is still unclear, however estimates are now between 5.5 million and 9 million (60 kg) bags, up from 2 million to 3 million last week," said Charles Sargeant, softs and agricultural commodity broker at Britannia Global Markets.

"Forecast for the coming weeks is for continued cold weather. Cities such as Santa Maria, Bage and Pelotas may see lows of minus 6 degrees (Celsius)."

Meteorologist Rural Clima, meanwhile, said that another polar air mass will move over Brazil this week, bringing temperatures down sharply. There is potential for more frosts in coffee, cane and citrus areas in Sao Paulo and Minas Gerais states.

Independent meteorologist Mike Palmerino said that a high-pressure system would move into south Brazil on Friday, which could allow for multiple days of frost and freezing conditions in Brazil's coffee areas.

Arabica coffee futures prices have risen by about 35% since the end of June, raising the prospect that major brands may have to raise prices in the coming weeks.

A Nestle spokesperson had no comment on the potential for retail prices to rise. (Reporting by Nigel Hunt in London and Marcelo Teixeira in New York Editing by David Goodman)

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