“Producers must know when to go to the coffee market and think beyond the farm gate”

People who follow the quotations know much they’ve dropped specially during the past 12 months. Despite the lower crop, prices have fallen in 2022, causing surprise to coffee producers and the coffee market.

Such sharp decrease, initially, is due to market inversion, in the words of Lúcio de Araújo Dias, Cooxupé’s Commercial Head.

In a 2022 balance he talked, chiefly, about the oscillations, logistic and stock challenges, raising interest rates in international coffee market, and significant increase in costs of production.

Dias also exposed his perspective on how the market may behave in 2023. Follow:

Hub do Café: HOW HAS THE MARKET BEHAVED DURING 2022?

Lúcio: In 12 months, particularly, the market has shrinked 47% if we compare NY quotation for March 2023 in late November 2022 with the same quotation just one year before.

Such sharp decrease occurs because the markets get ahead of facts. Here in Brazil, the harvest was really smaller, in short. Although, present markets have gotten more expensive than futures.

That’s to say, that the big players in coffee market, like funds and big dealers who buy physical coffee and hedge in stock exchanges, could cover interests and warehousing costs.

And also, they made results, leaving bad operations in their positions. That entire stock, in the end, which was in the hands of the market (financial and commercial) brought up a problem, for the inversion of quotations didn’t cover financial and warehousing costs of those stocks.

So, what has happened? They’ve reached those who could buy to avoid losses. Thus, quotations started to fall, over and over. Despite the small harvest, those who had coffee entered the market and quotations dropped.

Therefore, what we have to learn is that everyone has a role to play. When quotations are high, we’d better sell. Thus, we do add the cost to this scenario, as well as the rise in interest rates, in an average of 6% per year, and we see values getting higher. By these means, in 12 months, we’ve seen such 47% decrease.

Hub do Café: AND HOW DO COFFEE PRODUCERS HAVE TO BEHAVE IN SUCH SITUATIONS? IN WHAT MOMENT SHOULD THEY GO TO THE MARKET?

Lúcio: Each one is playing a role. In this case, specifically, the producers must know the right moment to sell and negotiate. They have to think beyond the farm gate and, then, make a decision when quotations are good.

Currently we see this 47% drop in quotation, comparing to the same period last year. We had been worried about the weather and smaller harvest. Though, global recession impacted by the war and the pandemic has joined the problems.

Hub do Café: IN A GENERAL SCENARIO, DID MARKET DECREASE IN 2022?

Lúcio: Yes, there’s been a big fall. Coffee’s decreased along the year. And, in spite of a series of factors, those major buyers’ stocks joined the scene. In the meantime, even stocks certified by NY Exchange have risen.

And this is chiefly due to Brazil’s and Hondura’s coffees. That’s to say that roasters went to these people to buy, having nobody to sell to, so they sold and certified it in the Stock Exchange. The scene was opposite to our expectations.

Virtually, we’ve been experiencing good shipments of coffee. May the market get better? Yes, it may. But, it won’t be a burst. It’s most likely to happen in 2023. For reasons like the coffee market’s normal volatility, shift of government in Brazil, currency, etc.

We must see a reaction between January and February. But we always argue that the producers need to know the right moment to negotiate. And they must be attentive to foreign market. Moreover, by the end of last year, we talked a lot about this. The producers need to know the right moment to negotiate and sell when the market is good. Above all, deciding the ideal moment is up to them.

Hub do Café: LAST YEAR, WE TALKED ABOUT THE RISE IN PRICE PER BAG, WITH INCREASE IN COSTS OF PRODUCTION. HOW DID IT OCCUR IN PRACTICE?

Lúcio: All that might have happened in our perception, actually happened. We always told the coffee producers that locking the crop would be important. However, it hasn’t happened, unfortunately.

As a result, in 2023 the harvest may be similar in numbers to previous years, in case of Arabica coffee. Other point is that those who buy what they won’t hold possession of, definitely will need to sell it anytime.

So, coffee natural movements generate opportunities that use to show up each 60 or 90 days, in average. Here’s where knowing the right time to deal is up to the producer. But the decision must take place in the right momentum of the market, grabbing the opportunities in order to obtain profit.

Hub do Café: DURING THE YEAR WE’VE SEEN GREAT IMPACTS RELATED TO THE CRISIS IN LOGISTICS. AND, WHAT ARE THE PERSPECTIVES FOR 2023?

Lúcio: We see some important improvement in general logistics, like in maritime freights, regarding containers. And, most importantly, inflated values have retreated.

But, in November we had a big Cooxupé’s shipment canceled because other operator paid higher for the containers. Comparably, it’s sort of an auction. The one who pays higher wins!

In this specific case, lumber traders, that sell firewood to Europe, paid higher for the space in the vessel. In the context of the oil crisis, the demand for firewood has become urgent in some regions in Europe.

Now, the scenario is more favorable due to de demand. We have already received larger vessels at Port of Santos that, conclusively, have solved the problem. The first semester of 2022 was chaotic. But now it is normalizing and we are able to meet all commitments.

Hub do Café: AND, HOW MAY THE COFFEE MARKET BE FOR THE PRODUCERS IN 2023?

Lúcio: In fact, producers must be attentive to the market and macro-economic scenario. Always having an eye beyond their farm gates, and looking for the right moment to take action. However, in case of doubts they must resort to the Cooperative, which seeks to assess possibilities and risks.

The producers can always count on Cooxupé’s support. We try to give thorough information, with good sense and close attention to all situations.

Hub do Café: HOW HAVE THE CO-OP BEEN COPING WITH SUSTAINABILITY MATTERS? AND WHAT IS THE INFLUENCE OF ESG CRITERIA AND GERAÇÕES PROTOCOL ON COOXUPÉ’S POLITICS?

Lúcio: In short, our coffee production is quality-oriented. Some markets like Japan, USA, Canada, Europe and Australia are really conscious and demanding.

The freshest novelty is that European Parliament have recently approved a series of sanctions concerning countries that produce coffee out of the rules. That’s to say, those who apply slave-like workforce, child labor, or do not respect labor laws, they will be set aside. We’ve known it was going to happen. Thus, we’ve been talking about sustainability protocols for years.

By these means we seek to adequate to the market. We’ve created internal protocols, very well structured, aiming at offering ways to the producers. And we have already done a lot of job when it comes to production, practices and assessment, in order to ensure that we are in the right direction. This road has no return after all.

Looking to the future

So, from this very moment, we need to be responsible, and gain adherence to the world market. I see that we’ve already walked a long way, you know? Our producers, as a whole, have developed a lot in matter of sustainability.

We are working on Gerações Protocol. We also have some assignments towards balance of carbon, and maximum limits for residues of agrochemicals. And there’s no way back! We need to meet the demands of consumers.

Older consumers are being replaced by the younger ones. And, moreover, the level of demand from young consumers has been changing. Then, we are moving to a more conscious world, which wants to know the provenance of goods it consumes.

Conclusively, we always emphasize to our members that they need to understand the market, to know what happens, and therefore take the best decisions. Choices are free, but consequences are mandatory. Finally, it’s important to have information from reliable sources, and that’s why Cooxupé’s professionals are available to support farmers on their decisions.