Weak Coffee Prices Worry Producers in Brazil

Coffee prices in the commodity markets are sliding, which is a major cause of worry for Brazilian coffee traders and producers.

Gil Carlos Barabach, an analyst with Safras e Mercado, explains that the current situation in the markets is becoming a real concern in the short term.


"If we analyze what happened with coffee [prices] since 2012, there is a lot of financial-related elements in this accumulated drop since 2012. This means that this negative signal from the financial markets is worrying because it has a direct negative effect on coffee prices," he said in an interview broadcast on Brazil's Canal Rural, on 18 March.

"What we noticed at the beginning of last year was that the price of coffee was rising from BRL400 per sack and producers were unhappy. Today, coffee producers are fighting to keep the price above BRL300 per sack. Last week ended with prices above BRL300 for the better coffees, but this week starts with a new test. The new price margin will be tested and it brings new concern. In this period, the price fell by BRL100 per sack for arabica beans and this removes the allure of coffee and explains the lack of enthusiasm among producers," Barabach declared.


In this period of crisis, the good news is that consumption started to pick up in the traditional consumer markets, such as the United States, Europe and Japan. Producer countries, apart from Brazil, have blends that mostly consist of robusta beans, which led to a spike in robusta consumption. "Consumption of arabica beans is on the fall, while robusta consumption is rising as it is increasingly replacing arabica beans. This is a sign of crisis. Namely, the processing industry is looking at prices as their bottom line. Robusta's lower price is needed in a context of crisis that is impacting on the market. That is why arabica beans lost their share to robusta beans," said Barabach.

As regards 2013, we still have a very uncertain situation regarding the economy and this means that industry will not change its approach. They will still favor prices as the principal factor for the creation of blends, which means robusta will be favored in relation to arabica beans.

 "We have two  bottlenecks that are very worrying for the coffee market. First, is the arrival of the Brazilian coffee crop. There is still a lot of coffee from the previous harvest to be marketed. The way that this new crop will arrive in the market and its effect on prices generates concern. A second factor that causes worries is that after the 2013 crop is harvested the coffee world will be looking at Brazil's next crop. Our next crop starts to take shape starting in August, September and October with the first flowering of the coffee plants. If the flowering season is strong, that means that there will be a strong crop in 2014," said Barabach, adding that the new 2013 crop and the flowering season in fall are the two critical points that could create more attrition for the market.