FOB Brazil coffee differentials react but remain far below last year

91

FOB Brazil differentials react but remain far below the same period last year

Last August, Brazil exported 3.256 million bags of coffee, including green, soluble and roasted/ground coffee, according to data from Cecafé. This corresponds to a decline of 3.3% from the same month last year when shipments reached 3.369 million bags. The biggest decline happened with industrialized coffee (soluble and roasted/ground), with 13.8%. Shipments of green coffee decreased by 2.2% from August 2019.

Brazil has already exported 26.37 million 60-kg bags in the first eight months of 2020, down 3% from the same period last year. Export revenue hit USD 3.37 billion, down 0.8% from January to August last year. The distribution of shipments points to 78% of arabica (20.64 million bags), with a highlight on hard cup, which accounts for 46% of the grand total (12.12 million bags). Conillon shipments reach 3.05 million bags and account for 12% of the total. Soluble coffee accounts for 10% of the total, with exports of 2.66 million bags in the first eight months of 2020.

In the first two months of the 20/21 business season, shipments totaled 6.45 million bags, which corresponds to a 4.5% decline from the same period in the previous cycle (6.76 million bags). Export revenue reaches USD 762.5 million, down 7.8%.

Brazilian coffee differentials in FOB exports are firmer, reacting to the strong decline on ICE and overcoming the bottleneck caused by the arrival of the crop, when there was an intense depreciation of export basis. The logistical problems, given the increase in freight and the difficulty in finding trucks and space in warehouses, also ended up helping strengthen differentials, justifying the growing firmness.

Despite the appreciation, the differentials are still very weak compared to last year. Good cup with screen 14/16 (MTGB) is trading at the port of Santos at -30 cents for immediate shipment. Compared to early September, when it exchanged hands at -40 cents, there is significant appreciation. However, in relation to the same period last year, when it was trading at -12 cents against ICE Futures U.S., it is still very weak, under the effect of the high dollar, big crop, and reaction on ICE.

It is interesting to note that the new crop differentials are in line with the positions in the physical market, with good cup 14/16 around -30 cents for shipments in the second semester of 2021. The behavior is similar for fine cup not only in the physical market but also with 2021/22 crop positions.