CORRECTED-Brazil farmers seek higher prices on pre-sold coffee as deficit looms

(Corrects reason for spike in prices in 2014 to drought instead of frost in paragraph 11)

* Traders fear widespread defaults going forward

* Farming unions defend bid to renegotiate contracts

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.

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.

Others who are late delivering their coffee are asking to postpone shipments to next year.

“Farmers who sold coffee between 450-650 reais ($207.05) are now looking at spot rates of 800,” said a Netherlands-based trader at a global trade house on Monday. “Defaults are going to be a big problem I think.”

International commodities traders face sharp losses if they pay more for coffee now than their sale price to roasters months ago.

Even worse, they might have to source pricey coffee on the spot market if farmers default.

Defaults have not yet happened as the harvest is just starting, sources said, but they are likely within months.

“We had farmers or their lawyers calling, asking for renegotiation. We said we can’t change the terms now,” said the Brazil head of an international commodities trade house.

“If a farmer decides to default, it would be a loss of around 200 reais ($37.60) per bag. It’s a lot,” he said late on Monday.

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.

Coffee exporters deal in thousands of bags so the losses could extend into the millions.

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.

“We believe there will be farmers defaulting, but we hope it will be a small number,” said Sergio Hazan, chief executive of Comexim, one of Brazil’s largest exporters.

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.

Smaller Brazilian brokers have received renegotiation requests, but said farmers would think twice before defaulting for fear of facing a potential boycott from buyers.

Farmers union Sincal defended the renegotiations, citing the poor crop this year.

“We are not telling people to break contracts … but farmers who didn’t produce enough will have to sit with the trader and explain the situation,” said Sincal’s director Marco Antonio Jacob.

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