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Brazilian Coffee Discounts Seen Widening With Supplies Plentiful

Buyers of coffee from Brazil, the world’s biggest producer, may get a bigger discount for their beans with plentiful supplies, according to broker Cazarini Trading Co. in Varginha, Brazil.

Brazilian arabica coffee of fine-cup quality was trading at a discount of 11 cents a pound to prices on the ICE Futures U.S. exchange, unchanged from a week earlier, the broker said in a report e-mailed yesterday. Arabica coffee futures fell the most in 12 years in 2012 after a record crop in Brazil in 2012-13 and rising inventories. The beans, favored by Starbucks Corp., slumped 37 percent, the worst performing commodity on the Standard & Poor’s GSCI gauge of 24 raw materials.

Brazil’s output will slide to 54 million bags in 2013-14 from 57.1 million bags this season as arabica trees enter the lower-yielding half of a two-year cycle, Volcafe, the coffee unit of commodities trader ED&F Man Holdings Ltd. estimated on Nov. 30. The crop would still be a record for a lower-yielding year, according to the Winterthur, Switzerland-based trader.

There is “big carry over” and a bumper off-cycle crop on the way, Thiago Cazarini, a broker at the company, wrote in the report, referring to bean stockpiles that will be carried from the current season to the next. “My bet is that the Brazilian arabica differentials can even soften in a lower market but the key lies at producers’ needs to sell their stocks.”

Differentials refer to a discount or a premium paid to obtain physical coffee in relation to the price in the futures markets. Arabica coffee for March delivery fell 0.8 percent to $1.454 a pound by 7:10 a.m. in New York. Usually, the discount would narrow if futures are going down.

Brazilian coffee producers have been holding back beans this year waiting for higher prices. Slower sales resulted in exports falling 17 percent to 25.3 million bags of coffee from January to November compared with the same period a year earlier, data from the country’s coffee exporters’ council, known as Cecafe, showed. A bag weighs 132 pounds.

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