* Traders fear widespread defaults going forward<\/p>\n
* Farming unions defend bid to renegotiate contracts (Adds detail on possible default implications)<\/p>\n
NEW YORK\/SAO PAULO\/LONDON, May 25 (Reuters) – Coffee farmers in top producer Brazil are trying to renegotiate their sales contracts with exporters and traders at higher prices, sparking industry fear over widespread defaults, brokers, traders and a union representing growers said.<\/p>\n
Farmers and their representatives want more than what they had accepted months or even a year ago, saying coffee prices have surged because drier-than-normal weather is expected to sharply reduce production.<\/p>\n
Others who are late delivering their coffee are asking to postpone shipments to next year.<\/p>\n
\u201cFarmers who sold coffee between 450-650 reais ($207.05) are now looking at spot rates of 800,\u201d said a Netherlands-based trader at a global trade house on Monday. \u201cDefaults are going to be a big problem I think.\u201d<\/p>\n
International commodities traders face sharp losses if they pay more for coffee now than their sale price to roasters months ago.<\/p>\n
Even worse, they might have to source pricey coffee on the spot market if farmers default.<\/p>\n
Defaults have not yet happened as the harvest is just starting, sources said, but they are likely within months.<\/p>\n
\u201cWe had farmers or their lawyers calling, asking for renegotiation. We said we can\u2019t change the terms now,\u201d said the Brazil head of an international commodities trade house.<\/p>\n
\u201cIf a farmer decides to default, it would be a loss of around 200 reais ($37.60) per bag. It\u2019s a lot,\u201d he said late on Monday.<\/p>\n
The trader said there is no room for renegotiation, since margins are usually small on commodities deals. He said non-compliance could lead to growers receiving a bad credit rating, which could make it difficult for them to access financing.<\/p>\n
Defaults are very rare in the coffee sector although traders cited some cases in 2014, when a serious drought hit Brazil and coffee prices surged.<\/p>\n
Coffee exporters deal in thousands of bags so the losses could extend into the millions.<\/p>\n
Arabica coffee futures have risen nearly 30% since early April to a four-year high last week on looming supply tightness and demand recovery post-COVID.<\/p>\n
\u201cWe believe there will be farmers defaulting, but we hope it will be a small number,\u201d said Sergio Hazan, chief executive of Comexim, one of Brazil\u2019s largest exporters.<\/p>\n
Hazan said Comexim has not received renegotiation requests, mostly because the company has few contracts for future delivery. But he is aware such requests have been made to others.<\/p>\n
Smaller Brazilian brokers have received renegotiation requests, but said farmers would think twice before defaulting for fear of facing a potential boycott from buyers.<\/p>\n
Farmers union Sincal defended the renegotiations, citing the poor crop this year.<\/p>\n
\u201cWe are not telling people to break contracts … but farmers who didn\u2019t produce enough will have to sit with the trader and explain the situation,\u201d said Sincal\u2019s director Marco Antonio Jacob.<\/p>\n