Physical trade in Brazil's coffee market remained quiet this week amid expectations the government would soon announce acquisitions to build up public coffee stocks, traders said. Brazil's government is mulling more purchases of beans from farmers after commiting last month to buy 3 million 60-kg bags of 2009/10 coffee.
"Officials want to build up private stocks, which is fundamental to support farm gate prices," said Carlos Melles, the head of the congressional group representing coffee producers. He said the government has decided what kind of measures will be taken but has not determined operational details. Direct purchase from the spot coffee market is one option.
In the past, Brazil stockpiled coffee to help control local prices. But it abandoned that practice, and prices have been below production costs for years, Melles said. The government expects prices will tend to rise as coffee traders realise about 10 million bags will be removed from the market. The December coffee contract in New York has fallen more than 10 percent this month.
The government has committed to buy 3 million bags, which would cost 1 billion reais ($530 million) when storage costs are taken into account. This is dependent on growers' wish to sell the coffee. "(The measures) are not clear... and when information is not clear it generates speculation. Trade freezes," said Guilherme Braga, the executive director of the Council of Coffee Exporters, Cecafe.
The export market is practically stopped, with only nominal prices, according to Carvalhaes brokerage. This month through August 26, Brazil's green coffee exports reached 1.5 million bags, up from 1.25 million bags in the same period last year, Cecafe said. "These exports were deals closed in recent months," Braga said, adding that the bulk of exports traded this month was coffee remaining from the old crop. About 80 percent of the 2009/10 crop, estimated at 39 million bags, has been harvested.
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