Coffee physical market melts down in Brazil with crop progress and falling dollar

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In Brazil, the domestic physical coffee market is melting down, following the dollar’s low and pressured by the advancement of the new Brazilian crop. The U.S. currency, which recently exchanged hands very close to BRL 6.00, ended up plummeting and is currently sold at BRL 5.08. This 15% decline, of course, ended up weighing against domestic coffee prices, inflated precisely by a very high dollar. Thus, the curves of domestic coffee prices accentuated the negative slope in early June, moving far away from the peaks reached in May.

The most drastic effect was on better cups, previously highly valued in the face of scarcity of supply. The arrival of the new crop and the dollar and ICE lows led to a very significant decline in the price of these descriptions. The crop progress and, consequently, the increase in the physical supply must keep negatively weighing on prices. So much so that the appraisal of future crop prices are already much lower than for immediate delivery. Ideas for September 2020 are BRL 45 lower a bag than in the physicals, and even for September 2021 there is a decline by BRL 5.00 per bag.

(gráfico: preço Sul de Minas)

Good cup with 15% of defects in the south of Minas Gerais is indicated between BRL 495 and 500 per bag in the physicals. With that, the market is sinking below the 5-year average and is leaving the region very favorable for sales. This explains the decline in market liquidity. Fine cup from Cerrado and Mogiana follows the same behavior, sharply falling. Cerrado’s fine coffee is pegged at BRL 515 a bag in early June, against BRL 620 a few weeks ago.

The weakest cups also fell, feeling the weight of the crop. However, the decline was much less significant. One reason is that they did not rise like the best coffees. Another reason is that the harvest and drying have proceeded with drier weather, which limits the availability of these descriptions in the physical market, thus inhibiting a greater price depreciation. Finally, the aggressiveness of the local industry also helps support the prices of the weakest cups. Arabica rio with 20% of defects in Matas de Minas region is around BRL 370 a bag in early June. Finally, conillon, which ended up suffering only a slight negative adjustment. Brazilian conillon remains aggressive in the foreign market (cheap in dollars), which helps reduce supply. The slower harvest pace also helps support conillon from Espírito Santo. Conillon type 7 is trading between BRL 343 and 345 per bag in Vitória.