Traders send Brazilian coffee to ICE exchange amid stocks drawdown

By May Angel and Marcelo Teixeira

LONDON/NEW YORK, Nov 5 (Reuters) - Global traders are shipping about 150,000 60-kg bags of Brazilian arabica coffee to ICE exchange warehouses in Europe, a move that could help replenish stocks and ease nearly record-high prices, four industry sources told Reuters.

The sources, which include three traders and one broker, said traders are shipping the coffee because falling physical prices in top coffee grower Brazil have made it profitable to deliver beans to the exchange, where it can be tendered against the exchange's futures contracts.

"We are sending 60,000 bags," said the Brazil-based coffee trading head at one of the world's largest agricultural commodities trade houses, confirming that his company was one of those shipping the beans and adding that it would look to send more if the trade pans out.

ICE arabica stocks are currently at 1-1/2-year lows of around 430,000 60-kg bags, close to levels seen in late 2023 when they fell to their lowest in more than two decades.

The stocks drawdown has helped keep ICE arabica futures, which are used to price physical coffee around the world, not far off record-high levels.

Deliveries of the 150,000 60-kg bags could help ease the rally, but much more will be needed for stocks to reach comfortable levels, according to two of the sources.

The stocks will be tendered against ICE's front-month arabica contract, which expires on December 18, but one of the sources said he expects another 100,000 60-kg bags will arrive ahead of the second-month contract, which expires on March 19.

Traders started making plans to ship the coffee in August, when physical prices in Brazil for grades that can be certified at the exchange fell to a discount of around 18 to 20 cents per lb versus the front-month ICE contract.

The Brazil-based coffee trading head said there are about 12 cents per lb of logistics costs involved in shipping coffee from Brazil to Europe, so any discount wider than that makes the trade profitable.