November 6, 2018 / 1:31 PM / a year ago

Wave of Brazil conillon coffee boosts ICE exchange stocks

LONDON (Reuters) - Brazilian robusta coffee has been flowing into Europe - a market that traditionally doesn’t consume it - with shipments in recent months fueled by tight exchange supplies and a slump in the country’s currency, trade sources said. The coffee has rebuilt ICE Europe Futures certified stocks from multi-year lows and pushed nearby robusta prices to a discount, erasing the sizeable premiums that have dominated the market structure for months.

FILE PHOTO: Robusta coffee fruits are seen in Sao Gabriel da Palha, Espirito Santo state, Brazil May 2, 2018. REUTERS/Jose Roberto Gomes/File Photo

Trade sources say several international firms dramatically stepped up shipments of Brazilian robusta - known as conillons - to Europe in July, August and September. At that time, a slump in the Brazilian real - which hit its weakest in almost three years in September - made

“For Brazilian producers, even when the market was trending towards the lows, it wasn’t a disaster,” said one source. “So that’s why you saw a lot of shipments to Europe, which we’ve now seen go to the certified stocks.”

Engelhart Commodities Trading Partners and Louis Dreyfus Co were among the trade firms shipping sizeable quantities of conillon coffee destined for the futures market, according to three sources.

Louis Dreyfus declined to comment. Engelhart CTP did not respond to a request for comment.

Stocks stood at 95,460 tonnes as of Nov. 4, up nearly 52 percent from 62,890 tonnes in early July, when they hit their lowest since April 2014, according to an ICE spokeswoman.

About 33,360 tonnes of Brazilian conillon coffee were graded in that period, according to a Reuters calculation based on ICE data, although sources said there are still more beans in the pipeline for grading.

Notably, shipments to Britain and Belgium, where the majority of certified stocks are located, jumped to nearly 650,000 bags - or 39,000 tonnes - for July, August and September, according to data from the Brazilian Coffee Exporters Council (Cecafe).

“The bulk of this coffee is coming mostly for certification, especially to the UK,” said another source.

Certified stocks are usually mostly made up of robusta coffee from Vietnam, the world’s top grower of the variety. Conillons are tenderable but are not widely used by European roasters due to their distinctive taste.

Sources said the recent surge in shipments is the largest flow of conillons to Europe since 2015, when a huge crop and a drop in the real drew a wave of supplies.

Those beans were ultimately a hard sell to buyers and wound up in certified warehouses for years, until deep age discounts finally made them attractive to roasters recently.

However, trade sources noted a recent contract rule change - under which buyers no longer have to pay for the load-out of stocks from warehouses - has made certified supplies more attractive to roasters.

Meanwhile, strong physical differentials continue to make Vietnamese beans more expensive for the industry, further boosting the appeal of the cheaper certified conillons.

“Things are completely different now,” said another source. “Clearly, the conillons are the cheapest coffee around. With these differentials, the market will find buyers.”

Shipments to Europe have now begun to slow, the sources said, after the real surged back in October amid expectations that market favorite Jair Bolsonaro would be elected president.

The replenishment of certified stocks has helped cool the spot premium, which in July jumped above $100, triggering an ICE intervention to cap it from rising further.

Spot November robusta has recently been trading at a discount of $11-$33 to January. Trade sources estimate a $40-$50 spot discount is necessary to fully cover the cost of holding certified stocks.

“It’s not full cash and carry but at least the structure is closer to where it should be,” said one source.

Reporting by Ana Ionova, editing by Veronica Brown and Susan Fenton

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