Brazil currency rout spurs bean export

[LONDON] Your morning espresso may soon be a little more Brazilian.

US processors of robusta beans used in instant coffee and espresso are buying from Brazil at an accelerated pace as they cut back on purchases from Vietnam, which grows almost half the world's supply. In Europe, imports of the beans also have surged. That's because farmers in the South American country, aided by a plunge in the value of their currency, are undercutting sales by the world's largest producer even as the price of the commodity drops.

While Brazil has long been the biggest producer of all coffee varieties, it mostly grows the higher-end arabica beans favored by Starbucks Corp. Vietnam dominates the market for the more bitter-tasting robusta variety. When political and economic woes sent the Brazilian real down 36 per cent in the past year, the most among 24 emerging market currencies tracked by Bloomberg, that helped reduce production costs for growers and turbo-charged shipments.

"The depreciation of the real in the past two years is certainly providing an advantage to Brazilian robusta growers," said Keith Flury, head of coffee research at Volcafe, a unit of ED&F Man Holdings Ltd."It's clear producers in Brazil have seen their costs fall more than growers in Vietnam, where the dong hasn't fallen nearly as fast." Brazil's exports of conilons, as the nation's robusta beans are known, jumped 53 per cent to a record 3.08 million bags in the first eight months of 2015 as a weaker real boosted earnings of the commodity sold in dollars, according to exporters' council Cecafe. A bag weighs 60 kg. In Vietnam, shipments declined 31 per cent to 969,000 metric tons, or 16.1 million bags, from January to September, the General Statistic Office estimates.

Even as robusta coffee futures fell 15 per cent in London this year to $1,625 a ton - good news for importers - the price expressed in Brazilian reais jumped 20 per cent, which provided a boost for exporters. Vietnamese shippers weren't so fortunate as the commodity fell faster than their domestic currency, which slid 3.7 per cent. The result was the value of the beans in Vietnamese dong dropped 11 per cent.

Brazil, which normally uses its conilons for the domestic industry, has stepped up shipments as output expands and local roasters switch to lower-quality arabica beans, Guilherme Braga, head of Cecafe, said in an Oct 1 interview in Milan. Most of Brazil's robusta exports are being consumed by US roasters or being sent to Europe to be delivered to the ICE Futures Europe exchange in London, according to Olam International Ltd, one of the world's top three coffee and rice traders.

"There's definitely been flexibility in the US because US.roasters have always used conilons," Dwayne Schmidt, a senior trader at Olam, said in an Oct 2 interview in Basel, Switzerland. "If you would ask European roasters if they'd use conilons instead of Vietnamese beans, they would tell you no, never will. But if they were offered US$200 cheaper than Vietnam's, they might."

Brazilian Robusta Exports of Brazilian robusta coffee to the US jumped 56 per cent from January to August, Cecafe data showed. Shipments to the UK more than quadrupled, and those to Germany tripled. Most of the beans delivered to ICE Futures Europe when the July and September futures expired were from Brazil, according to exchange data.

BLOOMBERG