Colombian coffee traders default on their contracts causing panic on the market
October 14 - 2021 Coffee Geography Magazine
The world's No. 2 Arabica producer, Colombia have defaulted on 1 million bags of coffee beans this year by exporters and traders who broke their commitments to deliver their produces causing roasters in consuming countries to face even higher prices.
About 550,000 Colombian coffee farmers make their living growing coffee which are based on the benchmark futures contracts on the ICE exchange. The farmers decided to cling with their product to re-sell the coffee at higher rates. World coffee prices have already soared 53% this year due to Brazil’s weather condition. The trade default in Colombia is pushing the prices to even the next level impacting the roasting business sector to lose profit.
Leading global roasters may change the blending style and avoiding 'single origin Colombia' coffees due to the sourcing problem. Large traders are expecting losses of $8-10 million each on the defaulted coffee, while the coffee growers federation FNC, which represents farmers accounts for 20% of the country's 12.5 million bags of annual coffee exports, faces higher losses.Buyers are skeptical by the statement from the Colombian farmers who say they will deliver the coffee later this year or next. FNC head Roberto Velez confirmed that Colombia is facing widespread defaults.
For the last six years, selling coffee forward in Colombia was popular up until this year, a kind of move mostly in favor of farmers as world prices drifted lower so farmers received better prices for their coffee on delivery. Defaults in a major producer like Colombia always aggravate price spikes on the world markets. It is now witnessed all across the board.