Continuing high differentials for Brazilian coffee meant buyers were searching for alternatives to Brazil in Europe's physical coffee market this week, traders said on Friday.
"The great difficulty this week was that alternative origins have noticed that people are looking for Brazil replacements and differentials for alternatives were very firm," a trader said. "This meant it was difficult to get business done."
"Everyone wanted Brazilian replacements, the question was where from and this was not easy to answer." Brazilian differentials have remained firm in recent weeks although the country's harvest is now reaching top speed. Brazil MTGBF was quoted at 12.5 cents under the New York July contract, unchanged on the week but 1.5 cents more expensive than in early June - at a time when differentials would be expected to fall because of harvest pressure.
Prices in Brazil's internal coffee market remain high, discouraging exporters from offering lower differentials to win foreign sales. Exchange rate movements were also discouraging a differential cut.
"European industry was still refusing to pay the current high Brazilian differentials this week," one trader said. "A couple of sales were made for 2008 delivery but I think trade rather than origin were the sellers." "North American industry switched its attention to Colombia, while Europeans were looking for washed milds from a wide range of origins." "But there was also some European buying of Colombian coffee for second half 2007 delivery."
Some alternatives to Brazil became significantly more expensive this week. One example was Ethiopia Djimmah G5, which was offered at four cents under New York September, much more expensive than the 14 cents under it had been offered at last week.
"Supply tightness in Ethiopia met a lot of demand as people looked for Brazilian replacements and the differential just shot up this week," a trader said. "Ethiopia is now so expensive it cannot be regarded as a Brazil alternative." European interest in early Honduras new crop beans was also noted but tight offers restricted business.
Robusta business was said to be very quiet, with European industry physically well covered for the second half of 2007 and large stocks available in Europe providing a buffer should an unexpected requirement develop.
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