Physical market soars, following the dollar
The physical market remains highly valued, finding support in the realignment on ICE and, mainly, in the dollar surge. This positive combination prompted a new escalation in domestic physical prices. Thus, the prices, especially of the best cups, have already surpassed the level reached at the end of last year. High prices have attracted more sellers, although business continues at a slow pace. In the physical market, demand is very selective and demanding for quality, which hinders trades. Now, if buyers find what they are looking for, they feel like paying even the spreads.
Commercial dynamics gradually migrate to the new crop. There, negotiations are still dragging on, despite very attractive prices. The adjustment to attitude changes – due to coronavirus, and good volume of commitments in more dynamic regions with forward sales – explains this behavior. Moreover, the ideas for forward business with Brazil’s 2020 crop do not repeat the same level reached in the physical market due to the expectation with the arrival of a record crop in a few weeks, which ends up driving away some sellers.
The dollar rally also helps fuel speculation with new highs for coffee, which also keeps sellers on the defensive. Some forex analysts put the dollar at up to BRL 5.50 amid the worsening of the coronavirus crisis. In any case, the recent price rally and the proximity of the crop ended up bringing more sellers to the market, which favors business.
Good cup with 15% of defects in the south of Minas is bidded at BRL 570, well above the same period last year and the deflated 5-year average. Coffee advances above historical parameters and is consolidating in an area favorable to sellers. The price for forward business with the new crop is between BRL 550 and 560 for good cup delivered in Sep/2020 in the south of Minas. The idea for Sep/2021 ranges from BRL 600 to 610, depending on description. The market is opening new opportunities for forward business with the new crop.
In Cerrado of Minas, fine cups are trading at BRL 610 per bag in early April, also above the 5-year average. The finest cups must keep rising in the physical market, at least until next season, due to the scarcity of product. The indications for forward business of fine cup in Cerrado range from BRL 590 to 600, and in Mogiana they are at BRL 580 for Sep/2020. Fine cup ranges from BRL 610 to 620 for Sep/2021 in both Cerrado and Mogiana.
Weaker cups do not follow the upward movement of Group 1 coffees. Arabica Rio with 20% of defects in Zona da Mata de Minas is around BRL 390 a bag in early April. Thus, Rio cup remains far from the 5-year average for the period, already showing signs of tiredness in view of the upcoming arrival of the new crop. Weak arabica suffers from strong competition with conillon in the domestic market.
Finally, conillon rose timidly, with type 7 from Espírito Santo indicated at BRL 325 a bag in Vitória. The price improvement is important, as it happens at the arrival of the crop. The conillon harvest is expected to pick up pace in April. However, even with rising prices, conillon remains below average for the period.