Commodities traders including Louis Dreyfus, Olam and Volcafe are pursuing legal action against hundreds of Brazilian coffee farmers whose failure to deliver on pre-agreed sales has left the merchants exposed to losses, according to sources and documents seen by Reuters.
Arabica coffee prices have rallied some 60% this year due to climate turmoil in Brazil. The price surge has tempted farmers to default on sales, tightening supply in a commodity that, like many others, has been affected by shipping delays and reduced availability of labor.
"We managed to negotiate and find a solution in most cases. Only in cases when talks ceased we resorted to the courts," he said, without identifying the number of cases the firm was working on. Forward sales volumes in Brazil have plunged due to both defaults and severe shipping backlogs, said two other global traders, exacerbating already tight global coffee supplies.
"Put together with issues, the defaults mean the availability of coffee in the U.S., Europe and Japan is getting more and more tenuous," he said. The size of the defaults vary from 500 bags to as high as 4,500 bags. At current market prices, a contract for 4,500 bags would be worth around 5.8 million reais .
In another, Louis Dreyfus was trying to find 1,000 bags it bought from a farmer in Patrocinio, another Minas Gerais municipality. The trader's lawyer told the judge that the farmer re-sold the coffee to a local merchant, where it was delivered, according to the legal filings.
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