Internal physical coffee market deviates negatively from average lines


Internal physical market deviates negatively from average lines

The physical coffee market ends up weakening due to the tumble on ICE Futures U.S. The dollar rise helps ease external pressure, but it is not enough to reverse the losses. Thus, good cup is currently trading at BRL 520 to 530 per 60-kg bag in the South of Minas, well away from BRL 605 per bag in early September.

The comparison with deflated prices (updated values) reinforces the downward movement in coffee prices. The good cup ended up moving negatively from the 5-year average line. The index used is the IGP-M, in which the fluctuation of the dollar has a significant weight. Thus, the price of good cup in the south of Minas Gerais ends up moving away from the average line, even falling below the level of the crop arrival. The description is very sensitive to the fluctuation of the dollar and ICE. But the FOB differentials, which could serve as a counterpoint, ended up sharply falling with the rally on ICE U.S., rising much less to compensate for the new decline in the external benchmark. The result is that export prices have also become cheaper, contributing to the weakness of internal physical prices.

The loosening of the export differential is justified by the strong physical pressure of Brazil’s record 2020 crop. Some exporters already expect the arabica production to be well above that initially predicted. Full warehouses and logistical bottleneck would be indications of that.