Is coffee really a form of currency?
Society has evolved to exchange currency for goods as a simplification of the transaction. The relative value for a days labour for some token of denominated currency became less arbitrary that a fish or a loaf of bread. As financial systems evolved off of a gold standard the fluctuation of a currency became more of a representation of the government backing it. We are possibly seeing this extend into commodities. As currencies fall the real value of the goods that those countries export can represent more value than the currency. With a lower foreign currency value goods can be sold at either higher value in the home currency or at a lower price based on the US dollar.
The Brazilian real and the Colombian peso have each fallen about 2.8% in September. Those sharp drops are an incentive for producers and exporters to sell their products abroad since they would receive more reais or pesos back for the commodities sold in U.S. dollars.
Coffee and sugar prices are tumbling as supply concerns ease, but there’s another factor fueling the decline: weak currencies.
Brazil is the world’s top supplier of arabica coffee and sugar. Its currency, the real, was trading at a more than one-month low against the U.S. dollar. It has given coffee producers an opportunity to sell some of the beans left over from previous bumper crops.
In Colombia, the world’s second-largest grower of arabica beans, the weaker peso has allowed exporters to lower their prices and sell more coffee onto the international market. The peso traded Wednesday at the weakest level since March.
Colombian exporters mostly sell coffee based on a premium over the futures contracts on the ICE Futures U.S. exchange, a global benchmark. Mauricio Bernal, a managing partner at of A. Laumayer & Co., an exporter based in Medellín, Colombia, said he lowered his offered premiums by more than 50% over the past month.
“What [the weaker currency] has allowed us to do is lower the Colombian premium over other origins,” he said. “It means a lot more pesos per dollar.”
Those additional supplies on the international market are helping cool concerns over a drought earlier this year in Brazil that is expected to clip output this year. Arabica coffee on ICE ended down 5.8% at $1.8125 a pound, the lowest in a month.
Both nations have seen an increase in coffee exports, with Brazil’s shipments of unroasted coffee up 14% last month from a year ago, while Colombia’s coffee exports rose 49% over the same period.
Brazil’s weaker real is also encouraging sugar producers to lock in prices, said Jack Scoville, a vice president at Price Futures Group in Chicago.
Sugar prices settled Wednesday at 14.52 cents a pound, the lowest level since June 2010, on selling pressure from Brazilian producers and on expectations of a fourth consecutive season of global sugar-supply glut.
With weak currencies it is more advantageous for countries like Brazil and Columbia to use commodities like coffee and sugar as a method of foreign exchange instead of depleting their stocks of US dollars. The coffee is renewable the US dollars are finite. As countries come into difficulty financially we may start to see countries with weak currencies trying to exchange goods because they represent real value.
Posted on: 2014-09-12 12:00 AM 
