Coffee physical market tumbles on external weakness

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The Brazilian physical coffee market continues the negative movement, still strongly pressured by weakness on ICE. The dollar gains helped ease the decline in domestic coffee prices. But the dollar rose much less than the losses accumulated on ICE. In this sense, the negative slope prevails, which moved prices even further from the highs set in December last year, taking liquidity from the market. For the best coffees, the accumulated decline between the peak in December and the price charged at the beginning of February exceeds BRL 100 per bag. The sharpness of the fall scared growers and drove the market to a halt.

Hard cup from southern Minas Gerais with 15% of defects is trading at BRL 460 a bag in early February, against BRL 570 in December. The month of February is normally slightly negative, with the seasonal reversal extending to March and mainly April. In May there is already new coffee on the market. Albeit expected, the violence of the losses was quite surprising and is linked to the pessimism that grips global markets.

Thus, southern Minas arabica not only moved away from the price charged in 2018 (it was trying to get closer at the end of last year), but also widened the negative distance from the historical 5-year average. This reinforces the negative reversal of this early 2020. Despite the strong low, the market still remains above the level reached in the same period last year. That is not the ideal world for sellers, but at least it works as encouragement.

In Cerrado of Minas Gerais, the finest cup is trading at BRL 490 a bag in early February, also well below the five-year average, albeit still maintaining advantage in relation to the price practiced at the same time last year. This better start compared to last year, together with the good volume of forward sales, supports a year of better profitability for growers.

Indications for the future crop also fell, following the external low. In the south of Minas, the idea for hard cup with 15% of defects ranges from BRL 465 to 475 a bag for Sep/20. Fine coffee from Cerrado is pegged at BRL 470 to 480 for Sep/20. The fall drove sellers away.

Arabica Rio also dropped, following the losses of group 1 coffees. Rio cup with 20% of defects in Zona da Mata de Minas is indicated at BRL 330 a bag in early February. Unlike the best cups, Rio cup is below the same period last year and very distant from the average for the period. A greater supply of weak arabica and strong competition with conillon in the domestic market explain this weaker performance of the cup. The trend is for the market to remain stratified, with better cups more valued.

Conillon has fallen little at the beginning of February, consolidating the recent losses. Type 7 from Espírito Santo is around BRL 295 a bag in Vitória, remaining far from the same period last year and well below the average for the period.