FNC, Private Exporters Face Liquidity Squeeze on High Margin Requirements
FNC, Private Exporters Face Liquidity Squeeze on High Margin Requirements
Coffee Network (Bogota)- Higher margin requirements demanded by the Intercontinental Exchange (ICE) have squeezed the liquidity of both the Colombian coffee growers federation and private exporters, four analysts consulted by Coffee Network said.
Margin requirements jumped from about US$10,000 per 10 lots of coffee to almost US$16,000 for the same lots of coffee amid booming coffee prices, squeezing the margins of both the coffee growers federation and some private exporters, Andres Agredo, technical analyst at Café Trading Advisors said.
The coffee growers federation has denied the claims, while some small private exporters have confirmed the liquidity squeeze.
Juan Camilo Restrepo, former agricultural and finance minister, explained that when coffee prices rise in the stock market, the safety margins that support the contracts must be increased as well.
But coffee analyst Guillermo Trujillo said the large private coffee exporters are not facing liquidity problems due to rise in margin calls because their headquarters allocate more money to their local Colombian unit to ensure that they continue to buy coffee taking advantage that the country is in the midst of picking its main harvest.
The director of the coffee exporters association Asoexport was more caution on the matter claiming that this issue must be reviewed on a case-by-case basis.
Side-effect of expensive coffee
Separately, the effects of high coffee prices in the international market have also affected the local coffee market as private exporters are not buying beans, while the parchment intermediary have retained beans awaiting a higher payment, a private exporter said, who declined to be named said. Colombian local coffee prices continued to climb to all-time record propelled by rising international coffee prices and the depreciation of the Colombian peso.
Local prices for two bags of parchment coffee of 125kg will pay today COP2.7 million Colombian pesos ($611) for today, surpassing average 2024 prices of COP1.4 million-COP1.8 million pesos. Prices are also sharply above production costs of COP1.3 million, according to figures from the coffee growers federation. This is the highest level ever, FNC confirmed.
But most coffee growers are failing to sell their beans to the private exporters, who faces a liquidity crunch, while others have already fulfilled their buying contracts ahead of time.
In addition, the parchment intermediary is also breaching contracts with private exporters as they had agreed to sell their beans at COP2.3 million for two bags of parchment coffee, but now they are not selling the beans awaiting the private exporter to pay COP2.7 million per 125 kg of parchment coffee, the private exporter added.
“The market has come to a dead end,” said a producer.
Amid high coffee prices, international roasters and buyers have also abstained from purchasing expensive coffee beans, another reason that explains why the local coffee market has come to a standstill.
“External demand is dead due to the rally, so if there are no sales, then there are no purchases (in the local market), explained the coffee exporter.
Two coffee growers said the only institution that is buying coffee right now is FNC.
Agredo also explains that this situation could likely prompt a slump in international coffee prices soon.
“Buying interest is decreasing due to the reduction of origin differentials because everyone is tight. That is another reason why the buying interest is decreasing because they are buying less,” Agredo explained.
Arabica coffee futures extended their rally, marking a fifth consecutive positive close today: The March contract is booming at the time of writing, climbing 14.80 to 323.60. The May contract is rising15.15 to $316.80.
By Diana Delgado
