By Nayara Figueiredo, Marcelo Teixeira and Maytaal Angel
SAO PAULO/NEW YORK, July 22 (Reuters) – Frost that struck Brazil’s espresso belt this week has sparked fears of farmers defaulting on deliveries of recently-harvested espresso that have been bought to commodities merchants months in the past at costs that now are half the present values.
An uncommon chilly snap, with temperatures dropping to freezing ranges in a matter of minutes on the morning of July 20, delivered a blow to the guts of Brazil’s espresso belt, damaging timber and harming prospects for subsequent yr’s crop.
Farmers might imagine twice about assembly their contract obligations for the present crop, mentioned merchants and analysts, as ICE futures for arabica have sky-rocketed. SOF/L
“These farmers bought espresso for as little as 500 reais ($96.20)(per 60-kg bag),” mentioned Judy Ganes, a U.S.-based mushy commodities analyst, including that the worst drought in 90 years had already minimize Brazilian espresso manufacturing.
Some farmers have sought to renegotiate costs with merchants earlier than the frost.
“The market was speaking about defaults when costs have been 40 cents under,” mentioned a European espresso dealer who added the newest pricing “made the danger 10 instances extra doubtless.”
Arabica espresso costs KCc1 rose 10% on Thursday to $1.95 per pound, the very best in six-and-a-half years.
A dealer who works with massive worldwide merchants sourcing espresso in Minas Gerais, Brazil’s largest producing state, mentioned the bodily market is frozen.
However, he added: “up to now, we now have not obtained any formal phrase from farmers saying they won’t ship.”
Airton Gonçalves, who has almost 400,000 espresso timber in Patrocinio, Minas Gerais, state mentioned he delivered 1,500 baggage to European dealer Sucafina this week, a day earlier than the July 20 frost. He had agreed months in the past to promote that espresso on common for 640 reais per bag.
Brokers heard of presents in Minas Gerais on Thursday for 1,050 reais per bag, with no sellers.
SIZE OF LOSSES, SLOW RECOVERY
Estimates on Thursday diverse on potential losses to subsequent yr’s crop because the market digests the harm. Preliminary forecasts of a lack of 1-2 million baggage shortly elevated. Brazilian exporter Guaxupe mentioned it expects a minimize of 4.5 million baggage on preliminary projections of almost 70 million baggage for 2022 manufacturing.
Ganes, who has traveled to Brazil 3 times this yr to verify the drought and the frost, mentioned it was too quickly to take a position.
“There are a number of aerial photographs going round. However no person is aware of if these timber must be solely pruned, which can end in zero manufacturing subsequent yr, or should be taken out, which suggests no manufacturing for 2 or three years,” she mentioned.
Eduardo Carvalhaes, a veteran espresso dealer within the port metropolis of Santos, in Brazil, mentioned that espresso nurseries have been additionally hit by the chilly snap, which can complicate farmers’ replanting plans.
Farmer Gonçalves, who believes he might want to take out round 80,000 burned timber, is just not positive if he’ll discover seedlings.
“I’d must plant corn in that space subsequent yr whereas I look ahead to timber to reach available in the market”.
($1 = 5.1975 reais)
(Reporting by Nayara Figueiredo in Sao Paulo, Marcelo Teixeira in New York and Maytaal Angel in London; further reporting by Julia Symms Cobb in Bogota Enhancing by Marguerita Choy)
((marcelo.teixeira@tr.com; +1 332 220 8062; Reuters Messaging: marcelo.teixeira.thomsonreuters.com@reuters.internet – https://twitter.com/tx_marcelo))
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