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Dollar's fall to weakest since 2014 heaps pressure on coffee producers

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Weakness in the dollar, which on Wednesday hit its lowest since 2014, unearthed worries among Colombian coffee growers, who said it was adding to pressure on finances from weak prices and weather setbacks.


Roberto Velez, head of Colombian coffee growers’ federation Fedecafe, cautioned that the strength of the country’s currency, the peso, had risen to the top of a list of concerns for the country’s producers.


Mr Velez said: “What worries me, what has growers sounding the alarm, is the strengthening of the peso,” which on Wednesday stood at 2,854 per $1 – up 4.5% against the greenback in 2018 so far.


The level of “2,850 pesos to the dollar will begin to be a big problem”, Mr Velez said, flagging the pressure on producer margins, as the stronger peso forces extra pressure on Colombian prices to maintain export competitiveness.


The country exported more than 13m bags of coffee last year, equivalent to more than 90% of its output of 14.19m bags, on Fedecafe data.


“Coffee growers are not making money, are almost losing money,” at current exchange rates, Mr Velez added, hoping for a “return to levels of 3,000 pesos” seen in mid-December.


‘Global production implications’


The comments came as the dollar extended its decline, falling on Wednesday below a level of 90.0 against a basket of currencies for the first time since December 2014, in a decline blamed on worries over US trade policy, and over a political regime termed “dysfunctional” by some commentators.


The fall took the dollar’s drop so far this year to 2.9%, with Colombia’s peso making particular headway thanks to the firmness in the value of its biggest export, oil.


“Fortunately for the Colombian coffee farmers there are state and federation assistance programmes in place to counter loss making production costs,” merchant I&M Smith said.


However, it flagged that – with international, dollar-denominated coffee prices weak too – many producing countries faced a double whammy.


“The soft nature of the international coffee prices, accompanied by a weaker US dollar, is becoming a problem for many other coffee producer communities,” the South Africa-based group said.


Weakness in the dollar, “so long as the coffee markets remain soft, must eventually impact upon global coffee production volumes”.


Real gains


In Brazil, the top coffee-growing nation, the real has risen by some 3.7% against the dollar so far this year, with more gains potentially on the way if the country’s courts late on Wednesday reject an appeal by former president Luiz Inácio Lula da Silva against a corruption conviction.


Upholding the conviction is seen, in barring the left-wing politician from running for presidential election later this year, as a market-friendly result.


Such an outcome would “then eliminate his chance of running for president again this year, likely making the real firm up further”, said Rodrigo Costa, director of trading at merchant Comexim USA.


‘Message may get through’


In New York, arabica coffee futures for March stood at 121.65 cents a pound on Wednesday – up 0.6% for the session but still down 3.6% so far in 2018, despite what should be a boost to dollar values from appreciating currencies in major growing nations.


However, the large extent of arabica stocks already in importing countries was seen as muting the message from exchange rate changes.


“The message may well get through eventually, but only when importers get under real pressure to buy,” a European coffee trader told Agrimoney.

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