Government will buy up supply as bumper crop is expected
By Jeffrey T. Lewis and Alexandra
August
7, 2013
Brazil will buy arabica coffee beans
to help prop up coffee growers' incomes as prices languish, President Dilma
Rousseff said Wednesday.
The purchases will be made through
two programs. In one, the government will offer growers options contracts to
sell as many as three million 60-kilogram (132-pound) bags of coffee at 343
reais ($149) per bag, the president said. The contracts will have a delivery
date in March 2014, she said.
In the other program, the government
will buy coffee at a reference price of 307 reais per bag, starting
immediately, Ms. Rousseff said, although she didn't give more details on that
program. The agriculture ministry couldn't immediately provide more details,
either.
The prices are above the current 285
reais per bag that growers receive in Brazil. Global prices have also been much
lower this year than last, and some Brazilian growers had organized protests
earlier this year to demand government action to support the market.
"Growers who need resources in
the short term can now get them," Ms. Rousseff said in a speech in the
town of Varginha, in the state of Minas Gerais, which was shown on a government
website. Producers "will have better conditions to both grow and
sell" their coffee, she said.
Francisco Ourique, superintendent of
coffee for the Cooparaiso cooperative that represents more than 2,500 growers,
said the programs would have two positive effects.
"First, if the market doesn't
want the coffee, the government will take it at a price we know, and second,
the whole system now has a price reference to work with," Mr. Ourique
said.
Producers can use the government
prices to estimate their income and borrow money accordingly, he said.
The options contracts have proved a
bargain for the government in the past. After the options have been offered,
the price of coffee in markets has risen to the level offered in the contracts,
freeing the government of the need to actually buy the beans.
Indeed, arabica-coffee futures rose
on the news, with the contract for September delivery on the ICE Futures U.S.
exchange recently up 2.5% at $1.2085 a pound. But even with Wednesday's gains,
arabica prices are down 16% this year, mainly on expectations for a record
off-year coffee harvest.
Brazil's two-year coffee production
cycle is characterized by alternating years of higher and lower productivity,
and 2013 is a down year. But dry, temperate weather in Brazil's main growing regions
is expected to help this year's harvest come close to last year's record.
Options "could help ease the
glut" of coffee in Brazil, said Chris Narayanan, head of agricultural
commodities research at Société Générale in New York, said earlier this week.
But the extent of the government's
measures will dictate how much, if at all, the move will boost prices on the
global market, Mr. Narayanan said. "It's still a large supply that's out
there."
The International Coffee
Organization forecasts that Brazil will reap a crop of 48.6 million bags this
year. Last year's crop was a record 50.8 million bags.
Coffee growers in other countries
are also complaining about prices. In Colombia, the second-biggest producer of
arabica beans after Brazil, coffee farmers recently announced their second
strike of the year, slated to begin Aug. 19.
Growers in Colombia intend to
pressure the government to increase their government subsidies. The Colombian
government has so far refused the requests, saying coffee farmers already get
more subsidies than any other sector in the country.
Corrections & Amplifications
Brazil's government will offer
growers options contracts to sell as many as three million 60-kilogram
(132-pound) bags of coffee at 343 reais ($149) per bag. An earlier version of
this article said the price was 346 reais because of a misstatement by
President Dilma Rousseff.
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Leslie Josephs and Dan Molinski
contributed to this article.