Differentials lose some strength but remain valued on FOB exports

Foto: (Daniele Jesus/EyeEm/Getty Images)
Foto: (Daniele Jesus/EyeEm/Getty Images)

Brazilian coffee prices continue appreciated, despite the slight downward adjustment in the best cups. While a weak ICE helps maintain differentials firmer in FOB exports, a high dollar serves as counterweight. The external performance at the beginning of the season with the arrival of our competitors, especially milds, has been relieving bullish moves in the Brazilian FOB export. But the progress of the off-season and this year’s lower production here must facilitate a positive detachment from the external reference.

News about good blossoming of Brazil’s 2020 crop is already beginning to affect the FOB export market. Selling interest grows with longer positions of the current crop as well with the new crop. MTGB good coffee (Swedish 14/16), for example, is indicated between -12 and -13 cents against ICE in NY. This price reference is for both short-term shipment (until the end of the year) and for the first half of 2020. The new crop indication (20/21) is around -13 to -14 cents for shipment in Jul/Dec. Even with record crop potential, the differential is still tight due to a very weak ICE.

(gráfico: Diferenciais FOB exportação)

Fine cup screen 17/18 narrowed slightly, indicated at -2 cents against ICE in NY. Lower physical availability explains this relative valuation movement. The new crop position also narrowed from -3 to -4 cents for Jul/Dec 2020.

Rio 17/18 is around BRL 78 a bag for 50 kg (flat price), which is about -24 cents against ICE in NY. Rio coffee’s differential remains broader than last season due to the larger supply of weaker cups and stronger competition of conillon in the domestic industry preference. However, it is still firm compared to the historical average for October. Rio screen 15/16 is pegged at USD 74.00 for delivery in Nov/Dec. In positions with new crop for Jun/Dec 2020 the indication is -25 cents for 17/18 screen and around -30 cents for 15/16.

Finally, conillon 13 up is trading with a premium of +1 to +2 cents against ICE Europa (LIFFE) converted to cents/lb at the port of Vitória, in Espírito Santo. Indications for shipment in Jan/Feb 2020 narrowed and remain on par with ICE Europe.