Probably the most important factors are Brazil's huge
domestic consumption and the country's large exports of soluble
coffee that, together, mostly drive prices for Brazilian conillon
robusta.
Even though current conillon production is around 9 to 10
million bags, it should be noted that Brazil itself consumes some
16 million bags of coffee. Brazil is easily the world's second
largest consumer of coffee, behind the United States but well ahead
of the third largest, Germany. We do not know the precise
proportion of conillon in Brazilian domestic consumption, but it is
substantial at around one third or even more. In addition the
soluble industry probably accounts for a further 3 million bags or
so. Finally, the Mercosur markets of South America are ready takers
of Brazilian conillon as well. *
We are aware that much of the time domestic conillon prices
render export unattractive if not impossible. Consequently, foreign
roasters seeking to lessen their dependence on Vietnam, currently
the world's largest robusta exporter, really have to compete for a
share of the Brazilian production.
The conillon story to date certainly proves the
importance and value to a producing country of a progressive
domestic roasting industry. Conillon producers enjoy local
demand that renders the relevance of futures markets relatively
unimportant, also because most local roasters do not price their
coffee purchases in the same way as do the large multi nationals in
Europe: the local robusta futures contract in Sao Paulo at the
Brazilian Mercantile and Futures Exchange (www.bmf.com.br) did not record
any trade in 2006… In contrast, the arabica contract traded very
actively indeed - see Section 08.07 of the Guide. **
In our view conillon prices will only 'fall into line' so to
speak if production were to rise to substantially exceed current
demand. There have been instances where export prices have been
attractive vis-à-vis EuronextLiffe quotations and larger volumes of
conillons might well trigger more price correlation. However, given
the continuing strong growth in Brazilian domestic consumption we
would not expect to see this any time soon. We would also question
in how far closer price correlation would be of benefit to
Brazilian producers…
* To read more about the Brazilian domestic industry we
recommend visiting http://www.abic.com.br/estatisticas_us.html
for the 2006 Annual Report of the Brazilian Coffee Roasters
Association. See also Section 02.07 of the Guide.
** Most mainstream roasters in Europe purchase their green
coffee by pricing it through a differential vis-à-vis the New York
(arabica) or London (robusta) futures markets. For more on this see
topic 01.04.02 and section 09.02 of the Guide.
Posted 10 May 2007