(Bloomberg) -- A rally in coffee futures that’s increasing the financial cost of operating in the market has spurred two exporting companies in the world’s top supplier Brazil to seek debt renegotiation.
The companies, Atlântica Exportação e Importação SA and Cafebras Comércio de Cafés do Brasil SA, have jointly filed a request with a local court asking for a 60-day grace period. That’s a preliminary step that companies can use while renegotiating with creditors in order to avoid going through a formal bankruptcy protection process, said Daniel Vilas Boas, a lawyer for the companies.
In a document submitted by the companies’ lawyers to the court and seen by Bloomberg, Atlantica is described as one of the main arabica coffee exporters in Brazil, with an 8% share of sales. Both firms are part of Montesanto Tavares Group Particiaçoes SA, based in the Brazilian state of Minas Gerais.
The move illustrates how a steep increase in coffee prices can become a burden for exporters, who buy and sell physical coffee supplies and use the futures market for hedging. With arabica coffee futures climbing more than 70% this year, they are having to deal with increased costs of hedging due to higher margin calls.
“The unpredictable rise in prices seen in 2024 had a huge consequence on their finances, stressing their cash flow even more since they began to suffer from constant margin calls,” according to the document dated Nov. 26.
In a letter signed by the companies’ management team, Atlantica and Cafebras said they continue to operate normally. “We reaffirm our confidence in overcoming these difficulties,” they said.
Coffee futures in New York extended their rampant rally on Wednesday, touching the highest level in more than four decades.
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