Brazilian physical coffee market remains highly valued


The Brazilian physical market is sharply valued. In addition to the high international price and the relatively firm differential, the domestic physical price is being supported by the rising dollar. This sum of factors ends up offering strong support to physical coffee prices, despite the advance of the harvest. In the south of Minas Gerais, good cup is pegged at BRL 1,340 per bag (USD 244), with the market near recent highs, when it exchanged hands at BRL 1,360 per bag. Thus, the market continues in a strong upward trend and increases the positive distance from, the average reference deflated by IGP-M for July 2022. It is worth remembering that in 2022 the market still reflected the frost that occurred in Brazil in 2021.

The coffee market not only reverses the seasonal logic but also increases the positive distance from the deflated 5-year average, which reinforces the favorable moment for sellers. Even so, the growers’ haste is not noticeable, as they continue to slow down sales, after having taken advantage of the April high to get liquidity. The fact is that in a scare, with a more pronounced decline in prices, growers should not change their stance and keep slowly staggering sales, in anticipation of the cold season and new high volatilities. The rise in the dollar is another factor that has favored this trading strategy.

The indications for delivery in September 2025 (next season) range from BRL 1,315 to 1,325 per bag for good cup from Minas Gerais, which corresponds to BRL 395 to 400 per bag above the deflated 5-year average for the month of September, which is around BRL 925 per bag. The appreciated dollar and the better exchange rate for purchasing inputs end up expanding this favorable scenario for 2025. The recent rally in the dollar boosted the demand from growers for early dollar lock-in operations.

The risk is that the market changes its shape in the second half of 2024. Winter in Brazil will have already passed. The return of heavier rain in September and October, as some meteorological models are already indicating, could induce good blossoming and point to larger production in Brazil next year. The confirmation of this new narrative could result in a new shift in the market in the second half of 2024. This reading can count on the help from La Nina and the beneficial effects on robusta coffee production in Asia, with more frequent rain. This could all open up space for coffee to erase, totally or partly, the gains accumulated in recent months.

The finest cups are trading above BRL 1,400 per bag and follow the gains of good cup, with emphasis on the appreciation of larger screens, due to the profile of the smaller arabica beans. The weaker arabica cup is also valued, following the gains of group 1 coffees. These descriptions are being destined for the domestic roasted and ground industry, in exchange for conillon, highly valued by exporters.

Conillon keeps reinforcing its trend, finding support from robusta’s gains at the London terminal and the higher dollar. The strong flow of exports, at the beginning of the season, ends up drying up the supply and serving as support for higher prices of this coffee description. Conillon from Espírito Santo type 7/8 is pegged in Colatina at BRL 1,230 per bag (USD 224). Growers remain on the defensive and avoid taking a more significant position, monitoring rallies in London and the dollar. Signs of lower-than-expected production reinforce this behavior.