Accelerated external flow and weak differentials
The strong flow of world shipments ends up weighing negatively on the fundamental side, leaving the perception that supply remains comfortable. Brazil shipped 3.8 million bags last September, according to Cecafé. A record volume for the month of September. And exports should continue to speed up in the coming few months.
Crowded warehouses should guarantee this flow, as well as reinforce the idea of a higher than initially expected crop. Some trading companies are estimating Brazil’s 2020 crop above 70 million bags (SAFRAS points to 68.9 million bags – beginning of the harvest).
The high dollar (by stimulating sales) and the higher-than-expected crop (by confirming a record output) end up weighing against coffee prices. Both ICE U.S. and ICE Europe assimilate this scenario and increase the negative slope, especially in the case of the ICE U.S. However, the most direct reflection is on the basis of Brazilian coffee export prices. FOB differentials traded in Brazilian ports have increased slowly, offsetting very little the lows on ICE, well below expectations. The result is a weaker differential, making Brazilian coffee relatively cheaper in the foreign market. The justification for this performance is the pressure of physical supply availability.
Good cup with screen 14/16 coffee is trading at -26 against ICE U.S. (ICE at 104 cents). Even though the current export price is well above the level reached in early September, when it exchanged hands at -40 cents against ICE U.S. (ICE above 135 cents), it is still well below the average reference for the crop arrival between -20 and -21 cents. In comparison with the same period last year, the depreciation of the export price is even more visible. In October 2019, the description was trading at the port of Santos at -12 cents against NY (ICE at around 110 cents).