By Fabiana Batista, Isis Almeida and Marvin G. Perez
• Traders are preparing to send rare cargoes from Brazil to ICE
• Bourse, traders discussed gradings of Brazil beans in August
Brazil is set to flood the New York market with rare coffee cargoes as stockpiles that back futures contracts dwindle to the lowest level in more than two decades.
Major traders are preparing to ship Brazilian coffee to warehouses approved by the ICE Futures U.S. exchange starting in September, said people familiar with the process, who asked not to be identified because the information is private. The beans will be sampled, graded, and if approved, could represent the first significant increase in exchange reserves from Brazil since 2017.
A bumper crop and a weaker Brazilian currency have made the country’s beans more competitive than the washed-arabica type from Central America that usually backs the New York exchange. That’s supporting the planned shipments as traders continue to draw down exchange inventories, with bourse data showing stockpiles at their lowest level since 2000.
“The more New York futures rise, the more attractive the delivery of Brazilian coffee to the exchange becomes,” said Nelson Salvaterra, a broker at Rio de Janeiro-based Coffee New Selection. “Shipping to the bourse will be easy. The challenge will be to get beans approved.”
ICE started accepting the delivery of Brazilian coffee in 2013, but has so far failed to attract significant amounts as it only accepts washed arabicas, and most of Brazilian production is of naturals, or unwashed beans. Some of Brazil’s semi-washed arabica beans could potentially meet the exchange’s grading criteria and that’s what traders are testing out now, the people said.
A group of traders met the exchange earlier in August and discussed the ability to grade Brazilian beans, the people said. ICE Futures officials stressed that no naturals quality would be accepted as the contract is for washed arabicas. There was no mention of semi-washed supplies, the people said.
ICE said grading rules state that minimum standards for delivery require coffee to be “sound and free from all unwashed and aged flavors in the cup.”
Brazil produced a record 67.7 million bags of coffee this year, according to Santos-based exporter Comexim. Output of semi-washed arabicas was only 2.5 million to 3 million bags, said Cooxupe, Brazil’s top coffee cooperative. Still, production of that quality was bigger than in previous years, Salvaterra said.
Coffee from Brazil is trading at a discount to futures, while beans from countries including Honduras and Colombia are trading at a premium. The global coffee market has moved into a period of oversupply and Brazilian coffee has displaced exchange-certified inventory as the cheapest arabica beans in the world, London-based broker Marex Spectron said in a report on Aug. 25.
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