Firmer internal physical coffee market on short supply and buyers’ needs

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The Brazilian physical market follows the strength of the dollar and ICE’s recovery. This guarantees higher prices, especially for better cups, which more directly reflect the swing of the dollar and the futures. Despite higher prices, liquidity has been low, which leads to market distortions. The fact is that growers are more capitalized. For this reason, they have managed trading more smoothly. Thus, supply becomes shorter, which has forced the buyers with more urgent needs to be more aggressive, sometimes distorting physical prices upwards. These are isolated trades and involving specific lots, but lower liquidity and the sellers’ withdrawal have weighed on market prices.

Without much need for cash, many growers have preferred to wait for the most aggressive buyers. And this purchase reference, even without liquidity, ends up serving as a price base for some sellers. The practical result is an increase in the spread between buyers and sellers, less liquidity, and price distortions between regions and descriptions.

In general, good cup with 15% of defects from the south of Minas Gerais is around BRL 670 to 675 per 60-kg bag, with the description getting closer to the reference of BRL 700 per bag. Finer certified cups are trading well above BRL 700 a bag, with reports of some batches going up to BRL 725/745.

Fine cup from Cerrado de Minas is exchanging hands between BRL 705 and 710 per bag in the physicals. The idea for delivery and payment in Sep/21 ranges from BRL 710 to 720, and for Sep/22 between BRL 730 and 740. Shorter supply and good demand explain the value of this description. In Mogiana, fine cup is trading from BRL 700 to 705 per bag in the physicals.

Weaker cups follow the earnings of group 1 coffees, and Rio cup from the Matas de Minas region is indicated at BRL 460 a bag (buy price), with a chance at BRL 470 in case of more urgent needs. Conillon type 7 in Colatina, Espírito Santo, remained practically stable, indicated at BRL 415 per bag in the physicals. Conillon continues to lose relative value in relation to arabica, especially in the case of better cups.

Stable FOB Brazil differentials

Differentials had little effect on FOB Brazil. The market has found a balance between short supply and more balanced demand. Doubts about the size of the losses in Brazil’s 2021 crop along with financial volatility contribute to the more cautious stance amid market agents. Thus, fine cup screen 17/18 is pegged between -12 and -13 cents against ICE US for shipment in the first half of 2021. Good cup 14/16 (MTGB) is indicated from -25 to -26 cents. The same idea serves as the buy indication for new-crop coffee (shipment in Jly/Dec 2021). Offers, however, have been scarce. The buy indication for good cup 17/18 of the new crop is -20 cents for shipment from July through December 2021, but also without selling interest.

Rio cup 17/18 cup is indicated in the physicals at USD 88.00 a 50-kg bag. Rio screen 15/16 is around USD 83.00 per 50 kg bag (flat price). Idea for new crop at -47 cents for screen 17/18 and -50 cents for 15/16 with shipment in Mar/Jun.  Finally, conillon 13 up for Feb/Mar delivery is around +5 cents in the physicals. New crop buy prices (shipment in May/Jun) are at +2 cents/lb against ICE Europe.