Brazil Buys Coffee to Shore Up Prices

Coffee prices Friday bounced off four-year lows on expectations Brazil, the world’s biggest grower, is preparing to buy beans. Coffee prices are at a ten year low due to high stockpiles. In a move similar to the US agricultural policy of providing price supports, Brazil buys coffee to shore up prices. The coffee will be stored and, for now, effectively taken off the market. A couple of years ago prices of Arabica coffee were up. El Niño ravaged the coffee growing regions of Brazil and Colombia greatly reducing harvests. Coffee leaf rust was devastating plantations from Central America down to Colombia. This year Brazil expects to see a harvest surpassing last year’s record. Colombia has gotten a handle on the leaf rust issue and prices for Arabica coffee are falling in response to oversupply. A government response appears as Brazil buys coffee to shore up prices. They have done this before; buying directly from growers to reduce market supply and as a result holding prices up. Arabica coffee as wholesale coffee is selling for only a third of its price from two years ago and just this year prices are down by a fifth.

Here is a snapshot of coffee futures at the beginning of August, 2013.

NYMEX Coffee Futures as of August 3, 2013

Delivery Date and US Dollars

per Pound of Green Coffee

Sep-13 1.1825
Dec-13 1.2105
Mar-14 1.238
May-14 1.2565
Jul-14 1.2765
Sep-14 1.295
Dec-14 1.316
Mar-15 1.337
May-15 1.3525
Jul-15 1.3675

The general consensus is that the price for September delivery is staying above $1 a pound because Brazil buys coffee to shore up price. As the table shows the expected price for later delivery goes up as stocks are expected to diminish and Brazil will not necessarily have another record harvest next year.

Exchange Rates and Coffee Sales

Coffee is priced on the world market in US dollars. People in Brazil buy things with the local currency, the Real. After a strong run the Real has been losing ground against the USA dollar for the last two years. Here is a snapshot of the relationship of the Brazilian Real to the US Dollar over the last two years.

Date Real How Many Dollars
8/11 1 0.64
8/12 1 0.49
8/13 1 0.43

 

In early 2011 coffee futures went for $3 a pound which as just under five Reals. Today coffee futures are about $1.20 a pound which is just under three Reals. While coffee priced in dollars is just over a third its value of three years ago coffee priced in Reals is down forty percent. As Brazil buys coffee to shore up prices, some Brazilian farmers are selling their wholesale coffee anyway at current prices because they need money and the strong dollar gives them a better return for the current international coffee price than they would get with a weaker dollar.

For more insights and useful information about coffee and especially healthy organic coffee follow our articles on http://www.BuyOrganicCoffee.org .


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