SAO PAULO (Reuters) - Many Brazilian coffee and sugar producers saw a rare opportunity last week to fix prices with solid profit margins at a moment of global oversupply for both products, moving quickly to cash in when the local currency hit its cheapest levels in two years.
Grain farmers also locked in some sales, mainly for the next soy crop, but dealmaking was slower due to a policy debate over freight costs, analysts and market players told Reuters.
The Brazilian real plummeted around 5 percent on June 7 to nearly 4 reais per U.S. dollar — its weakest level since March 2016 amid concerns about erratic economic policy and a wide-open presidential race. For producers selling commodities in dollar terms, that meant more reais per ton of coffee, sugar or corn.
Funds investing in commodities and food processors track information on sales volumes from origins that are large producers, like Brazil, to better adjust their positions in the market.
“There was a large volume of sugar sales when the real reached 3.90 per dollar,” said Douglas Oliveira, a consultant who advises sugar and ethanol mills on sales strategies. “It was an opportunity you could not miss.”
Brokers helped mills to sell sugar futures in New York at the same time they sold non-deliverable forwards (NDFs) in the currency market with similar maturities, locking in the currency gains, according to Oliveira.
The coffee market works similarly. Even when producers are delivering their harvests to a local cooperative, they have the option to fix prices whenever they are more profitable, such as a moment of sudden currency weakness like last week.
“We fix when there are peaks (in prices),” said José Aparecido Naimeg, who produces coffee in the Cerrado region in Minas Gerais and delivers the product to the Expocaccer cooperative. The co-op handles the hedging in New York.
He said there were heavy sales by producers last week, since prices in reais jumped around 40 reais per bag (60-kg), nearing 500 reais ($134.59) per bag for fine cup arabicas.
Trading volume for coffee in New York on June 7 was the highest since June 2016.
The head trader at one of Brazil’s leading coffee exporters said one buyer snapped up 100,000 bags for around 490 reais per bag last week, since producers were more willing to close deals.
Thiago Cazarini, a coffee broker at Cazarini Trading Company, said deals cooled down again after the central bank stepped up its currency market interventions, bringing the real back to around 3.70 per dollar.
($1 = 3.72 reais)
Reporting by Marcelo Teixeira; Additional reporting by José Roberto Gomes and Roberto Samora; Editing by Tom Brown