Bloomberg News

Brazilian Fine Coffee Premium to New York Widens, Broker Says

November 04, 2011

Nov. 4 (Bloomberg) -- The premium buyers are prepared to pay to obtain fine cup coffee beans from top global producer Brazil widened over the past week as sellers held back beans, according to Rio de Janeiro-based broker Flavour Coffee.

Fine cup beans were selling at a premium of 5 cents a pound over ICE Futures U.S. in New York in the past week, compared with a premium of 3 cents a pound a week ago, the broker said in a report e-mailed yesterday. Good cup beans, which are a lower quality, were selling at a discount of 10 cents a pound, unchanged from last week.

“Producers were not eager sellers,” Flavour said in the report. “Differentials continue tightening up,” according to the report, which referred to the premium or discount paid to get beans in Brazil’s physical coffee market.

Brazilian producers still have to sell 10 percent to 15 percent of the 2011-12 crop started in July, Thiago Cazarini, a broker at Varginha, Brazil-based Cazarini Trading Co., wrote in a report yesterday. The nation will harvest 43.1 million bags of 60 kilograms (132 pounds) this season, according to Conab, the agriculture ministry’s crop-forecasting agency.

Beans from the South American country usually trade at a discount to the price in New York. The price of coffee on the BM&F Bovespa exchange in Sao Paulo is higher than the price in New York, data on Bloomberg show. ICE Futures U.S. will start accepting delivery of Brazilian beans in 2013.

Roaster Substitution

The premium for Brazilian coffee can be partially explained as roasters increased its use in blends after poor harvests in other Latin American nations, Rodrigo Costa, a coffee market specialist, said in July, when he was working at Newedge USA LLC. He correctly forecast beans in the Brazilian futures exchange would become more expensive than in New York.

“The roaster substituted heavily out of secondary milds and into fine and good cupping Brazils,” Marex Spectron Group said in a report e-mailed yesterday. “They learnt how Brazils could become part of their blend and Brazils were cheaper than milds.”

Colombia, the second-largest grower of arabica coffee, will produce its smallest crop in two years in 2011 as heavy rains cut output. The Andean nation’s harvest will likely slide to between 8.5 million and 8.8 million bags this year, down from last year’s 8.9 million bags, Jorge Vasquez, chairman of Colombia’s National Association of Coffee Exporters, said yesterday in an interview in Cartagena, Colombia.

Arabica coffee for December delivery was unchanged at $2.268 a pound by 9:33 a.m. London time on ICE Futures U.S. in New York.

--With assistance from Heather Walsh and Matthew Craze in Santiago. Editors: Sharon Lindores, John Deane

To contact the reporter on this story: Isis Almeida in London at Ialmeida3@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at Ccarpenter2@bloomberg.net.


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