Espresso King Undercut as Brazil Currency Rout Spurs Bean Export

Credits: Isis Almeida, Whitney McFerron

Your morning espresso may soon be a little more Brazilian.U.S. processors of robusta beans used in instant coffee and espresso are buying from Brazil at an accelerated pace as they cut back on purchases from Vietnam, which grows almost half the world’s supply. In Europe, imports of the beans also have surged. That’s because farmers in the South American country, aided by a plunge in the value of their currency, are undercutting sales by the world’s largest producer even as the price of the commodity drops.

While Brazil has long been the biggest producer of all coffee varieties, it mostly grows the higher-end arabica beans favored by Starbucks Corp. Vietnam dominates the market for the more bitter-tasting robusta variety. When political and economic woes sent the Brazilian real down 38 percent in the past year, the most among 24 emerging market currencies tracked by Bloomberg, that helped reduce production costs for growers and turbo-charged shipments.

Brazil’s exports of conilons, as the nation’s robusta beans are known, jumped 53 percent to a record 3.08 million bags in the first eight months of 2015 as a weaker real boosted earnings of the commodity sold in dollars, according to exporters’ council Cecafe. A bag weighs 60 kilograms (132 pounds). In Vietnam, shipments declined 31 percent to 969,000 metric tons, or 16.1 million bags, from January to September, the General Statistic Office estimates.

Even as robusta coffee futures fell 14 percent in London this year to $1,646 a ton — good news for importers — the price expressed in Brazilian reais jumped about 25 percent, which provided a boost for exporters. Vietnamese shippers weren’t so fortunate as the commodity fell faster than their domestic currency, which slid 4.4 percent. The result was the value of the beans in Vietnamese dong dropped 10 percent.

U.S. Roasters

Brazil, which normally uses its conilons for the domestic industry, has stepped up shipments as output expands and local roasters switch to lower-quality arabica beans, Guilherme Braga, head of Cecafe, said in an Oct. 1 interview in Milan. Most of Brazil’s robusta exports are being consumed by U.S. roasters or being sent to Europe to be delivered to the ICE Futures Europe exchange in London, according to Olam International Ltd., one of the world’s top three coffee and rice traders.

“There’s definitely been flexibility in the U.S. because U.S. roasters have always used conilons,” Dwayne Schmidt, a senior trader at Olam, said in an Oct. 2 interview in Basel, Switzerland. “If you would ask European roasters if they’d use conilons instead of Vietnamese beans, they would tell you no, never will. But if they were offered $200 cheaper than Vietnam’s, they might.”

Brazilian Robusta

Exports of Brazilian robusta coffee to the U.S. jumped 56 percent from January to August, Cecafe data showed. Shipments to the U.K. more than quadrupled, and those to Germany tripled. Most of the beans delivered to ICE Futures Europe when the July and September futures expired were from Brazil, according to exchange data.

Swapping robusta beans from one producing nation to another is not always a matter of price, Giuseppe Lavazza, vice president and member of the board of Italian roaster Luigi Lavazza SpA, said in an Oct. 1 interview in Milan. A switch will depend on the characteristics of the coffee, he said.

Brazilian robusta growers may have “very low” costs of production next year if recent flowering materializes into a large crop, said Flavio Ribeiro, a broker at Flavour Coffee in Rio de Janeiro. Costs were held back this year by lower output, he said. Brazil’s conilon production will fall 15 percent to 15.7 million bags in the 2015-16 season that’s under way, Volcafe estimated in an August report.

Sensational Flowering

“Flowering was sensational and husbandry is very good due to relatively high prices,” Ribeiro said by phone Sept. 30. “If we have a harvest that could reach 20 million bags next year and you divide that per hectares planted, then you will have a very low cost of production. If the real stays devalued, it will help even more.”

Lower exports from Vietnam are also boosting domestic prices for Brazilian conilons, which soared to a record 359.65 reais ($97.57) a bag on Oct. 9, according to Cepea, a University of Sao Paulo research group.

“Brazil’s conilon has the best of two worlds, with a good international coffee price and significantly more reais to the U.S. dollar,” Michael Neumann, chairman of board of trustees at Hanns R. Neumann Stiftung, a foundation that’s affiliated with Hamburg-based merchant Neumann Kaffee Gruppe, said Oct. 1 in Milan. “That combination spells bonanza.”

Source: http://www.bloomberg.com/news/articles/2015-10-13/espresso-king-undercut-as-brazil-currency-rout-spurs-bean-export