Arabica in reais rises to record, narrows discount to futures
‘Availability is lower every day even after record harvest’
By Fabiana Batista
Coffee farmers are hoarding arabica beans in Brazil, the world largest producer and exporter, on tightening domestic inventory and forecaststhat the next crop will decline to a 12-year low.
While futures in New York “go sideways amid a lack of fresh news, the farmer in Brazil knows what is going on inside his farm,” Tiago Ferreira, head of coffee in Brazil at Marex Solutions, said in an interview. “They know the size of the next harvest, and they’re waiting for better opportunities.”
Arabica priced in Brazilian reais rose to a record with trading in the spot market slowing after farmers sold large volumes on a forward basis in advance of the record-high harvest. Trees in the lower yielding half of a biennial cycle and adverse weather have undercut prospects for the next crop.
Arabica prices in Brazil reais jumped 8% this year amid a rally by the dollar and absence of seller, Cepea, the research arm of the University of Sao Paulo, said this week in a report.
On ICE Futures U.S. in New York, arabica has dropped more than 3% in 2021 on some recent beneficial weather in Brazil and concerns that global demand will be hurt by the coronavirus pandemic.
The Brazilian market discount to futures is narrowing because “last year’s bargain is running out”, said Nelson Salvaterra, a broker at Rio de Janeiro-based Coffee New Selection.
As of Jan. 12, growers sold 78%, or 54.5 million bags, of their production from the 2020-21 season, a record for the period, according to consulting firm Safras & Mercado.
“As producers sold a high percentage of their crop at great average prices, now they can start to manage their supplies,” said Carlos Alberto Fernandes Santana, a director at Empresa Interagricola SA, a unit of trader Ecom Agroindustrial Corp.
Exports climbed to a record in consecutive months, and “availability is lower every day, even after a record harvest”, said Salvaterra of Coffee New Selection. “Growers are capitalized, sold a lot and now are taking a rest.”
Some exporters are getting squeezed in the spot market after making forward sales, Salvaterra said. “Now, they have to pay the price farmers ask”.
Farmers are opportunistic, not actively hoarding, by selling when prices peak and withdrawing when markets ease, said Lucio Dias, commercial director at Cooxupe, the top arabica cooperative.