By Debarati Roy and Katia Cortes
June 16 (Bloomberg) -- Coffee growers in Colombia, the world’s third-largest producer, urged ICE Futures U.S. to ditch plans to change the benchmark contract for the commodity to allow beans from Brazil to satisfy delivery obligations.
Adding coffee from Brazil, the largest grower, to the list of acceptable supplies would compound pricing discrepancies and concerns about the quality of exchange inventories, according to a June 9 letter from the National Federation of Coffee Growers of Colombia to New York-based ICE Futures that was obtained by Bloomberg.
The change “would be detrimental to the integrity” of the New York futures contract and “is not in the best interest of the global coffee market,” Luis Genaro Munoz, the federation’s chief executive officer, said in the letter. Edgar Cordero, an executive vice president for the Colombian organization in New York, confirmed the letter today, declining further comment.
Brazil isn’t among the 19 arabica-coffee producers whose beans are used to satisfy the ICE contract, which allows deliveries to exchange-licensed warehouse in the ports of New York, New Orleans, Houston, Miami, Bremen/Hamburg, Antwerp and Barcelona. The exchange said last month it may expand the list to include Brazilian varieties.
“No decision on Brazil has been made at this point, and any decision on Brazil would have no bearing on Colombia’s deliverable status,” Tim Barry, a vice president at the ICE Futures, said today by e-mail.
Colombia is the second-largest grower of arabica beans favored by specialty coffee retailers, including Starbucks Corp. Brazil, the top arabica grower, is the second-largest producer of robusta beans used in instant coffee and harvested mostly in Asia and parts of Africa. Vietnam is the biggest robusta grower.
Price Differential
Colombian and Central American coffees used by the exchange have a “substantial and long-lasting differential” in price and quality from Brazilian supplies, Munoz said in his letter.
The spread between Colombian and Brazilian prices widened to 80 cents a pound in March from an average of 62 cents last year and 15 cents in the period from 2000 to 2008, Munoz said. Coffee futures for September delivery closed today in New York at $1.596 a pound, up 28 percent from a year ago.
There also is concern that washed and semi-washed Brazilian coffee deteriorates faster than Colombian beans, which would require a new discounting mechanism for supplies from ICE warehouses and new quality specifications, he said.
Brazil Wants Change
Producers in Brazil want ICE to move ahead with changes in the New York contract, according to Guilherme Braga, the general director of the Brazilian Coffee Exporters Council.
The move “would help Brazil’s coffee have a better international image for its quality,” Braga said today by telephone from Sao Paulo. “It would even help us have more access to specialty coffee markets.”
The countries whose beans are acceptable under the current ICE contract including Mexico, El Salvador, Guatemala, Costa Rica, Nicaragua, Kenya, New Guinea, Panama, Tanzania, Uganda, Honduras and Peru, according to the exchange. Premiums are charged for supplies from Colombia, and discounts are imposed for arabica from Burundi, Venezuela, India, Rwanda, the Dominican Republic and Ecuador.
Colombian production will rise to about 4.5 million bags in the first six months of the year, compared with 4.24 million bags a year earlier, the federation said last month. The harvest this year will total 10 million to 11 million bags, up from a 33-year low of 7.8 million in 2009, the growers said. A bag weighs 60 kilograms or 132 pounds.
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