The Dire Effects of Colombian Growers Failing to Meet Coffee Deliveries Author: Diana Delgado Latin American correspondent diana.delgado@stonex.com Coffee Network (Bogotá) – Colombian coffee growers, who had committed to deliver beans in the futures’ market, have failed to deliver 50 million kilos of parchment coffee, or about 549,450 bags of 70-kg putting at risk coffee cooperatives. And the risks of coffee growers failing to keep meeting with contracts in the futures market have sparked the creeps among cooperatives, the coffee growers’ federation (FNC) and private exporters, a trader and analysts told Coffee Network. A coffee exporter, who preferred to remain anonymous, said the market is extremely concerned as at least 1 million bags of 60kg, committed in the futures market may not be delivered in the period 2021-2022. Small and medium-sized coffee growers, who months ago had committed to sell their beans to the cooperatives in the future’s market, are unfulfilling with the delivery of beans because they sold beans in the future’s market at around COP1 million pesos for ($263). But when the delivery period arrived, local coffee prices where almost twice as much higher than the initial price set. As coffee has failed to reach cooperatives, the Colombia’s coffee growers federation and private exporters, the estimated cost for the non-delivery of beans is estimated at around COP350 billion Colombian pesos in losses or almost (US$100 million), according to coffee analyst Guillermo Trujillo. The “Snowball Effect” Four factors have merged to create the perfect storm for coffee cooperatives, FNC and private exporters. The growers committed to sell beans in the futures market at an average of 1 million and 1.2 million pesos per bag, but coffee prices closed at COP1.745 million today. The sharp 74.5% increase has been driven by the strong depreciation of the Colombian peso, rising international coffee prices and rising differentials on coffee quality, all factors that have pushed up Colombian internal coffee prices to historic record highs so far this year. The largest defaults are present in the provinces of Huila and Antioquia, Colombia’s first and second-largest coffee producing provinces respectively. They have failed to deliver 15 million kg of parchment coffee each, a well-known international coffee trader said. As a result, some 30 million kg of coffee are not reaching to coffee cooperatives, private exporters and FNC, he added. The balance 20 million kg of parchment coffee is not being delivered by growers in the rest of the country. In the southern department of Cauca, the unfulfillment of deliveries surpass 4 million kilos of parchment coffee, said Carlos Lopez, general manager of ASCAFE, an association that gathers some coffee cooperatives of Cauca, including 17 cooperatives that gather ex combats. “The base market participants have failed to deliver the 55% of the coffee for 2021. They have seriously jeopardized the sustainability of the companies that export the product like us. We have had to negotiate with our buyers in Korea, Europe, Italy and Australia because the crisis is very, very serious,” he told Coffee Network. The dire effect of the snowball effect is being felt across the board, people familiar with the situation added. FNC is pressing coffee cooperatives to fulfill with the delivery of coffee beans in the future’s market, but cooperatives are not fulfilling with the contract deliveries because producers are not turning in the beans. The situation is similar among private exporters, who said the most affected market participant is the coffee growers federation (FNC). Large international coffee roasters are also extremely worried with the unfulfillment of contracts and fear that this situation will worsen. “Who is going to pay those $100 million in losses. This cannot be translated exclusively to coffee cooperatives nor to FNC,” said the coffee trader. The financial books of some coffee cooperatives are already being hit, reflecting part of those losses as they must report financial result each month to the regulator, the coffee trader added. “We have to find a solution. Otherwise, coffee cooperatives are going to go bankrupt,” Trujillo noted. “If the cooperative defaults, someone is charged, and the losses must come out of someone's estate. This puts many cooperatives in a lot of trouble “ the coffee trader said. FNC has declined to speak about this subject. What the producer thinks Albeiro Hernan Duque Toro, representative for the Valle del Cauca province recently said during the online program “Speak with the general manager of the coffee growers federation,” that coffee cooperatives in Valle del Cauca are in serious problems because growers are not delivering the beans. Valerio Velez, a coffee representative from the Risaralda province, asked Velez to use funds of the coffee price stabilization fund to cover the no-fulfilment of future coffee contracts. “We are very afraid of futures sales and future sales are not meeting the needs of the market. In the past, we were used to sell beans in the futures market with differences of $0.5C/lb, but today we are seeing that $0.20 cents per pound in a single negotiation,” he said. Humberto Ayala said coffee growers in his province are losing COP440 million pesos (US$112,800) because they will have to deliver beans at a much lower price than current prices. Maria Ruby Muñoz from the coffee growers federation of Nariño said coffee growers are not going to fulfil with the delivery of beans they committed in the futures market. One way out will be forcing coffee growers to pay for the contract they failed to meet. But coffee dignity, a group that advocates for the well-being of coffee growers, said the speculation in the futures market for coffee is a lose-lose situation for coffee growers and coffee cooperatives. “For coffee growers who, convinced to use the sale of coffee in the future, a mechanism that, it is worth saying, navigates in the midst of its own financial speculation of the stock markets, represents losses for the coffee growers But the impact is not only for coffee growers, I think it is greater for cooperatives,” said Oscar Gutierrez, director of coffee dignity in a recent article. What comes in the future Alejandro Corrales, a senator and a coffee grower, said to avoid running the risk of cooperatives going bankrupt, the coffee sector should think in the future about contracting insurances that would likely cover the unfulfilled contracts of future deliveries. |
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