CAMPINAS, Brazil, July 11 (Reuters) - Brazilian coffee farmers and cooperatives sold large coffee volumes in the futures markets taking advantage of a spike in prices in anticipation of frosts in producing regions last weekend, according to producers and market operators.
Funds and speculators covered sold positions in New York arabica futures and in London’s robusta market last week with the first forecasts for a strong polar air mass moving to producing regions in Brazil, the world’s largest coffee grower, sending futures to seven-month highs.
That gave producers who have speedy access to futures markets through banks or cooperatives to fix prices and guarantee higher values for their current and future production, with some growers taking positions as long as months in 2021.
“In one day last week we received sale orders for 250,000 bags from producers, it was a very large volume,” said Lucio Dias, head trader for Brazil’s Cooxupé, the world’s largest coffee co-op and the country’s No. 1 exporter.
Cooperatives in Brazil set prices in local currency for producers, making their lives easier. After taking orders from farmers, they sell an equivalent position in New York, in the case of arabicas, and close another contract at the local B3 exchange in Brazil to avoid exchange rate fluctuations, the so-called currency NDF contracts (non deliverable forwards).
Most coffee farmers in Brazil are linked to cooperatives who provide them with daily snapshots of prices via messaging apps, allowing producers to quickly take advantage of spikes in prices.
“Our rule is: farmers only sell coffee in the highs, funds are the ones who sell coffee in the lows,” Dias told Reuters on the sidelines of the 2nd World Coffee Producers Forum.
Marcos Dianin, a coffee producer in the Cerrado region in Minas Gerais state, works with a similar tool with another co-op.
But he said there are limits to the system, since futures markets only accept top quality coffee, and farmers tend to produce high and lower quality.
“Around 40% of my coffee is top quality. The rest I have to sell at lower prices in the spot market,” he said.
Farmers from other countries in Africa and Central America who have less experience with those tools were discussing during the forum ways to also be able to profit from price spikes.
In some countries, producers end up with only 50% or 60% of the selling price, with middlemen taking the rest.
Reporting by Marcelo Teixeira Editing by Susan Thomas