Weaker coffee differentials given the pressure from available supply

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Brazil shipped 4.07 million bags in October, according to Secex, between green and soluble coffee, up 12% from the same month last year. Export revenue reached USD 502.87 million, up 14% from October last year. In the first 4 months of the 20/21 business season, shipments amounted to 14.76 million bags, up 7% from the same period of the previous season. Revenue grew by 11% in the period, totaling USD 1.76 billion.

Shipments should continue accelerated over the next few months. Secex partial data for green coffee in November indicate total shipments of 3.5 million bags until the 22nd. It is very possible that exports will once again exceed the level of 4 million bags and, so leading annual shipments to reach 43 million bags in 2020, as projected by Cecafé. This external flow must keep the world market well supplied from Brazil, which tends to alleviate the interest in demand at our ports.

FOB Brazil differentials remain weak, except for conillon. Brazil’s record crop in 2020 and a very high dollar explain the loss of relative value of Brazilian coffee in the international market. The difference remains high, even after the recent recovery of export bases, and weaker differentials mean that Brazilian coffee is relatively cheaper in the world market.

Good cup 14/16, for example, is currently trading at -30 cents against ICE U.S. Even after the recent high, it remains well below the average for the period and far from the same period last year, when it exchanged hands at around -15 cents. The best cups ended up losing value against the NY benchmark. Besides the dollar and record production, the scarcity of mild coffees (low certified stocks in NY) also helped to intensify the negative detachment of Brazilian natural coffees from the ‘C’ contract in NY (washed coffees).