Brazilian Farmers Weary of Tendering to Futures Market

SAO PAULO (Dow Jones)–Brazil’s coffee traders cautiously welcomed a controversial proposal this week to include Brazil’s high-end coffees in the top tier of grower nations whose beans underpin world prices, but farmers may take more persuading.

The New York commodities exchange, IntercontinentalExchange Inc., or ICE, is considering a proposal to allow Brazilian arabica beans to be delivered against the benchmark future contract for coffee, a move which has in the past been blocked by other coffee-producing countries keen to keep the world’s largest coffee exporter at bay.

Brazil would become the 20th country whose beans are allowed to be delivered against ICE’s future contract, and its acceptance by the trading community is a significant shift. The coffee industry has been reeling from widespread crop failures in Colombia and Central America that sent prices to multi-year highs, making it more necessary for them to bring in Brazil from the cold.

Arabica beans are the variety most commonly brewed in the U.S., and Brazilians have long argued that the exclusion of their beans from the ICE contract is an anti-trade anomaly.

“If approved, it’s great news for Brazil’s producers and exporters as it provides a new market for their washed- and semi-washed beans,” Sergio Carvalhaes, a partner at local exporter Escritorio Carvalhaes, told Dow Jones Newswires. The impact on ICE prices–currently at multi-year highs–may not, however, be significant, he said.

Still, its unclear at this stage whether Brazilian farmers will want to put in the extra effort to wash their beans and therefore make them eligible for ICE, said Anselmo Magno de Paula, an agronomist and commercial director at Cocapec Cooperative in Sao Paulo state, which receives more than 1 million bags a year of unwashed coffees from local farmers.

Although traditional farmers supplying Cocapec are unlikely to switch because of technology investments, higher electricity bills and the need to retrain employees, De Paula said that other more modern farms may take the plunge. Higher prices this year and last year for washed coffees make the switch more lucrative than a few years ago, he said.

Although Brazil’s coffee producers this season are expected to produce some 40 million bags of arabica coffee, they will only churn out an estimated 5 million to 7 million 60-kilograms bags of washed and semi-washed coffees, Carvalhaes said.

Brazilian washed beans this week continued to see strong demand from global buyers, trading at around 400 Brazilian reals ($240.6) per 60-kilogram bag, Carvalhaes said. This is some BRL80 per bag above the equivalent unwashed bean, he added. Coffee futures Friday were trading 1.17% down to $1.85 a pound on ICE Futures U.S.


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