Coffee Traders' Forum - A Discussion about Coffee Futures Trading
Coffee Traders Discussion Forum
Colombia’s Coffee Price Tests COP700,000 Threshold On Sharp Peso Appreciation
COFFEENETWORK (Bogota) –Colombia’s internal coffee prices have reached the 700,000 threshold amid the sharp appreciation of the Colombian peso, prompting growers to urgently demand a bailout from the government.
Internal coffee price closed at 702,000 on Friday for a 125-kg bag of parchment coffee, but production costs for the same bag ranges between 700,000 and 750,000 pesos for regular growers, which means many growers, are already producing at a loss.
Prices have dropped about 10% since the beginning of the year as the same bag for parchment coffee was trading at 776,000 pesos on January 1.
The drastic drop in local prices is explained by the strong appreciation of the Colombian peso. The peso has strengthened almost 10% since the beginning to the year to trade at 2,705 per dollar today, making it the most appreciated currency in the world, according to Julian Cardenas, analyst at Colombian pension fund Proteccion.
Cardenas says technically the peso could continue strengthening, unless there are potential oil restrictions of Iran and Russia.
The coffee growers federation sets every day internal coffee prices taking into consideration international coffee prices and the Colombian peso.
Oscar Gutierrez, director of Dignidad Cafetera (Coffee Dignity), a group that advocates improved conditions for coffee growers, told CoffeeNetwork today that they expect prices to keep on falling as the peso is likely to strengthen further.
“We could expect internal coffee prices of around 670,000 pesos because the peso would like drop to around 2,600. The situation is expected to worsen. We expect solutions,” Gutierrez said. “We are not saying that we will block roads, but we demand solutions,” he added.
Gutierrez demanded a bailout of $100,000 pesos for 125-kg bags of parchment when the internal coffee price drops below 700,000.
The Ministry of Finance is expected to announce a series of measures this week.
But some growers, who sell beans to certain coffee cooperatives in Colombia, have not been hit by the strong fluctuation of coffee prices as they use hedging mechanisms.
The De Los Andes coffee cooperative, located in the southwest of the eastern Antioquia province, buys as much as 70% of beans using hedging mechanisms to protect growers from strong fluctuations in prices and improve the growers’ revenues.
Writing by Diana Delgado