Rows of coffee plants stand at the Sao Gerardo farm in the state of Minas Gerais near Serra Negra, Brazil. Photographer: Paulo Fridman/Bloomberg

(Bloomberg) — It’s raining in Brazil, and the coffee bulls are running for cover.

Downpours in the past month mean moisture levels are adequate in most growing areas, replenishing soil left parched by a drought in 2014, according to MDA Weather Services. The rains in the top coffee producer and exporter spurred hedge funds to cut their bullish wagers by the most in a year.

Coffee swung from a bear market to a bull market and back again over the past year, making it the most volatile component of the Bloomberg Commodity Index. After 2014’s dry spell caused prices to double, futures retreated for a sixth consecutive month in February. Global stockpiles at the end of September will be 14 percent higher than previously estimated, the U.S. government said in its most recent outlook.

“The rain picture is really changing the trajectory for coffee going forward,” Paul Christopher, the St. Louis-based head of international strategy at Wells Fargo Investment Institute, which oversees $1.6 trillion, said by phone Feb. 26. “You have adequate world supply, and if production is increasing, you just don’t have to worry.”

The net-bullish position in coffee tumbled 49 percent to 8,167 futures and options in the week ended Feb. 24, U.S. Commodity Futures Trading Commission data show. It was the biggest drop since funds were net-bearish in January 2014. Long holdings fell by the most since October.

February Slump

Arabica-coffee futures tumbled 13 percent to $1.405 a pound in New York last month, the biggest drop since May. The Bloomberg Commodity Index of 22 raw materials rose 2.6 percent, while the MSCI All-Country World Index of equities jumped 5.4 percent.

Parts of Minas Gerais, Brazil’s top coffee state, got as much as double the normal rainfall in the first three weeks of February, according to Andy Karst, a meteorologist with World Weather Inc. in Overland Park, Kansas.

The country’s output will rise to 49.5 million bags this year from 47 million bags in 2014, according to Volcafe, the coffee unit of commodity trader ED&F Man. Production in Colombia, the second-largest grower of arabica beans, is poised to reach the highest since 2008, according to the nation’s main exporters group. A bag weighs 60 kilograms, or 132 pounds.

While rains have improved conditions, it will be difficult for Brazil’s trees to rebound from 2014’s drought, which was the worst in decades. Futures still need to drop a further 21 percent before erasing last year’s gains. Higher costs forced some coffee sellers to increase prices. In December, J.M. Smucker Co. the maker of Folgers, announced an 8 percent price increase on K-Cup packs effective Jan. 5.

Losing Leaves

As recently as January, dryness was still plaguing growing regions. Cooxupe, the nation’s top coffee exporter and grower cooperative, cut its outlook for its members’ production this season by 14 percent because plants were losing leaves.

“The latest decline in prices is because of the recent uptick in rain, but the issue is that the stress to the plants has already happened,” Gillian Rutherford, who helps oversee $20 billion as a commodities-portfolio manager at Pacific Investment Management Co. in Newport Beach, California, said by telephone Feb. 26.

Net-long holdings across 18 U.S. traded commodities fell 6.7 percent to 545,763 contracts as of Feb. 24, the CFTC data show. Bullish bets across 11 agricultural commodities slid 10 percent to 251,945 contracts, the seventh drop in eight weeks.

Copper Wagers

Investors got less bearish on copper, holding a net-short position of 343 contracts. That compares with 9,188 a week earlier. Prices in New York jumped 7.9 percent in February, the most since September 2012. Speculation that China will add to stimulus efforts has improved the outlook for metals demand. Futures slid 0.1 percent to $2.6895 a pound at 11:53 a.m. in New York.

The net-bullish position in gold fell 6 percent to 103,528 contracts, a fourth straight drop and the longest streak since October. Prices declined 5.2 percent in February as a rally for equities and the dollar cut demand for haven assets.

“The market is continuing to remain concerned about deflation, and gold has lost a bit of luster,” said Paresh Upadhyaya, the Boston-based director of currency strategy and a portfolio manager at Pioneer Investment Management Inc. which oversees about $248 billion. “In this environment of a stronger dollar, gold will have trouble finding traction.”

To contact the reporters on this story: Debarati Roy in New York at droy5@bloomberg.net ; Marvin G. Perez in New York at mperez71@bloomberg.net

To contact the editors responsible for this story: Millie Munshi at mmunshi@bloomberg.net Patrick McKiernan