The discount for Brazilian coffee sold in the United States has narrowed due to gains in Brazil's currency and limited spot availability at origin after substantial forward selling. The average differential for 2/3 fine cup/strictly soft arabica coffee beans from Brazil's Santos port firmed up to 6 cents a lb ex dock below the price of the March contract on ICE Futures US in the past week, the smallest discount since early October.
For much of the past month, the average discount has been 7 cents a lb below futures prices. Exporters in Brazil have fixed sales for a large portion of their crop, leaving less coffee available for purchase on the spot market, traders said. "The depletion of the inventories are because of massive sales and commitments," said Christian Wolthers, president and chief executive of green coffee importer Wolthers Douque in Fort Lauderdale, Florida.
Concerns about the impact of dry weather on Brazil's 2015 crop have prompted roasters to book forward commitments from the world's leading coffee producer to protect themselves against a potential surge in prices, traders said. Last week, Brazil's government forecast a crop of between 44.1 million and 46.6 million bags, similar to the 2014 crop, though the national coffee council, which represents producers, said it would be lower.
"People are kind of skeptical about the next crop," one US trader said. "Therefore, the differentials start narrowing a little bit." Brazil's currency, the real, is on track for its third consecutive week of gains against the US dollar, and as a result, exporters have raised prices in order to maintain levels of income, the trader said.
Front-month ICE coffee futures have fallen 6.5 percent so far this week and dropped to a six-month low of $1.5970 on Thursday. Traders said exporters were not eager to sell into a falling market, though several roasters took advantage of the declines to fix the underlying futures price on contracts for which they had already booked the differential.
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