According to media reports, the Brazilian real has recently been affected by Brazil's fiscal problems, leading to continuous depreciation. Although the real rose slightly by 0.21% at yesterday's close, the USD/BRL exchange rate still stood at 6.056.

It is reported that after rising for five consecutive trading days and hitting a record high, the USD/BRL exchange rate began to stabilize. Although the US dollar retreated in global markets, due to market concerns over Brazil's fiscal policy and Trump's threat against the BRICS countries, the exchange rate remained at a high level above 6.00.

This has also left Brazil's coffee industry facing many challenges. Exchange rate fluctuations have increased uncertainty in export revenue, putting enormous financial pressure on coffee growers and exporters. Although the depreciation of the real makes Brazilian coffee more price-competitive in the international market, it also drives up domestic costs. With the depreciation of the real and geopolitical influences, the prices of imported fertilizers and pesticides have risen sharply, increasing cultivation and operating costs.

In addition, on the exporter side, the depreciation of the real has added enormous exchange rate risk. To cope with exchange rate fluctuations, many exporters have had to use financial instruments (coffee futures) for hedging to reduce losses, but this has also pushed up futures prices and increased operating costs.

Recently, reports have pointed out that due to exchange rate issues, high arabica coffee futures, shipping delays, and the impact of drought on Brazil's coffee crop harvest, Brazilian traders Atlantica and Cafebras have delayed deliveries and taken debt restructuring measures, triggering market concerns.

According to reports, the exporter currently owes buyers about 500,000 bags, roughly 30,000 tons of coffee. In addition, the two trading companies have already applied to the court for debt restructuring, which has also exposed Brazilian banks to a credit risk of about 1.1 billion reais (USD 118 million), as the banks provided these traders with advance payments related to future coffee exports (ACC).

It is understood that the three coffee trading companies Atlantica Coffee, Cafebras and Ally Coffee are all subsidiaries of the Montesanto Tavares group, mainly engaged in the Brazilian coffee trade business, and hold an important position in the Brazilian coffee market, accounting for 8% of Brazil's coffee sales.

In court documents, Atlantica and Cafebras stated that the recent price surge is the latest challenge in their operations, as these increases led to margin calls on hedging operations, resulting in tight cash flow. At present, Atlantica and Cafebras are still operating normally, but they are requesting to negotiate most of their debts in court, and if the negotiations are unsuccessful, it could lead the company into bankruptcy proceedings. This has also caused concern in the coffee market, with many coffee importers worried that they will not receive orders on time.

In addition, domestic spot coffee prices in Brazil have surged, hitting a 26-year high. In the first half of November, the spot price of Arabica coffee was still around 1,500 reais/bag, but by the second half of the month, the spot price had risen sharply to 1,805.68 reais/bag, while Robusta also rose to 1,570.79 reais/bag.

As a result, the market is concerned that, with prices remaining high, other Brazilian exporters may run into financial trouble, affecting their coffee supply and driving coffee prices even higher. And because of the instability of prices and exchange rates, international buyers may demand lower prices, or turn to other relatively stable countries to source coffee. This would further squeeze exporters' profits and could lead to a decline in Brazil's share of the international coffee market.

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