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The Unprecedented Trade Default’s Expected as Growers in Brazil Demand for Much Higher Price

The Unprecedented Trade Default’s Expected as Growers in Brazil Demand for Much Higher Price 

May 28 - 2021 Coffee Geography Magazine

International Brokers and Traders in the major international coffee markets are expressing their concern as growers from the top producing country, Brazil are demanding a much higher price for their coffee. Renegotiating sales contracts with traders and direct buyers from the biggest producer sparks a huge default as the global market has no any other option to go to as an alternative due to the size of the supply from a single region and the logistics weight to temporarily shift their source.

Brazil coffee map
Brazil's coffee regions

Brazilian farmers and their brokers asked  more than what they had accepted months or even a year ago, saying coffee prices have surged because drier-than-normal weather is expected to sharply reduce production.Traders in the U.S. and Europefear of huge losses if they pay more for coffee now than their sale price to roasters months ago.

A Netherlands based trader said that the growers are asking four times more than the current price.

“We had farmers or their lawyers calling, asking for renegotiation. We said we can’t change the terms now,” said the Brazil head of an international commodities trade house.

“If a farmer decides to default, it would be a loss of around 200 reais ($37.60) per bag. It’s a lot,” he said late on Monday.

Margins are usually small on commodity deals to renegotiate and in case of not meeting their contract obligations,growers may receive bad credit ratings, which could make it difficult for them to access financing.

Arabica coffee futures have risen nearly 30% since early April to a four-year high last week on looming supply tightness and demand recovery post-COVID.

If a widespread default occurred in the coming months, traders would take their own action through their coffee associations by shifting their primary source to another region and advice the roasters to revise the coffee blending types. 

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