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.
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.