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Brazil Buys Coffee to Shore Up Prices
Coffee prices Friday bounced off four-year lows on expectations Brazil, the world's biggest grower, is preparing to buy beans. Coffee prices are at a ten year low due to high stockpiles. In a move similar to the US agricultural policy of providing price supports, Brazil buys coffee to shore up prices. The coffee will be stored and, for now, effectively taken off the market. A couple of years ago prices of Arabica coffee were up. El Niño ravaged the coffee growing regions of Brazil and Colombia greatly reducing harvests. Coffee leaf rust was devastating plantations from Central America down to Colombia. This year Brazil expects to see a harvest surpassing last year’s record. Colombia has gotten a handle on the leaf rust issue and prices for Arabica coffee are falling in response to oversupply. A government response appears as Brazil buys coffee to shore up prices. They have done this before; buying directly from growers to reduce market supply and as a result holding prices up. Arabica coffee as wholesale coffee is selling for only a third of its price from two years ago and just this year prices are down by a fifth.
Here is a snapshot of coffee futures at the beginning of August, 2013.
NYMEX Coffee Futures as of August 3, 2013
Delivery Date and US Dollars
per Pound of Green Coffee
The general consensus is that the price for September delivery is staying above $1 a pound because Brazil buys coffee to shore up price. As the table shows the expected price for later delivery goes up as stocks are expected to diminish and Brazil will not necessarily have another record harvest next year.