Monday 03 October 2022

Strong fluctuation of coffee prices drive agents away from the market in Brazil

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SAO PAULO, Brazil – After the low levels observed most part of May, arabica coffee prices in Brazil rose sharply in the last week of the month, surpassing R$ 400.00 per bag. The upward trend of quotes was linked to the sharp valuation of arabica futures at ICE Futures (New York Stock Exchange). Robusta coffee prices rose too, pushed up by the international valuations at ICE Futures Europe (London Stock Exchange).

Along the first fortnight of June, however, the strong fluctuation of arabica and robusta prices drove agents away from the market, reducing liquidity in Brazil. This scenario interrupted the fast trading pace observed in late May, when quotes were rising sharply.

Price fluctuation was most strong in the arabica market. While on June 4 the CEPEA/ESALQ Index for arabica coffee type 6 (delivered in São Paulo) closed at R$ 427.48 (US$ 110.83) per 60-kilo bag, the highest daily level since February 6 2019 (IGP-DI from April/19), on June 5, this Index dropped to R$ 403.57/bag (US$ 103.48), a steep 24.01 reais/bag down (or 5.6%).

This occasional sharp price drop was linked to the 655 points decrease for the July/19 Future at the New York Stock Exchange (ICE Futures) on June 5. On June 6, however, quotes rose again, in both the international (by 295 points) and the Brazilian markets (by 10.27 reais/bag, or 2.54%).

For robusta, the movement in the Brazilian market was similar to that in the international market. On June 4, the CEPEA/ESALQ Index for the robusta type 6, screen 13, Espírito Santo State, reached R$ 302.37/bag (US$ 78.37/bag), against R$ 286.20/bag (US$ 73.38) on June 5 – 16.17 reais/bag (or 5.35%) down.

In the international market, the upward trend of quotes was linked to both the purchases of future contracts and the weather in Brazil – low temperatures and rains during the harvesting worried international agents. The drops, on the other hand, were linked to the selling of positions, since concerns about the weather in Brazil decreased. The further recovery, in turn, was due to the repurchase of contracts. The US dollar fluctuation in the first half of the month also influenced international prices.

On June 14, the arabica coffee index closed at R$ 403.38/bag (103.62 USD/bag), 3.4% down compared to that on May 31. The US dollar, in turn, closed at 3.89 BRL, 0.8% down in the same comparison. As for robusta, the Index closed at R$ 287.52/bag (73.86 USD/bag), 3.9% down.

Harvesting 2019/20

Coffee harvesting advanced in Brazil in the first fortnight of June. In Rondônia, robusta harvesting stepped up, reaching from 70 to 80% of all the volume expected. In Espírito Santo, activities reached from 40 to 50%.

Concerning arabica, activities were favored by the firm weather in that period. In northwestern Paraná, harvesting reached from 30 to 40% of the area, while in Garça (SP), the volume harvested is between 25 and 35%.

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