Thursday, December 5, 2013

Robusta coffee supply squeeze faces double attack


The squeeze on robusta coffee supplies which has lifted prices to three-month high may not last for long, given the pressure on Vietnamese growers to sell down a record harvest, and an increase in Brazilian exports due early next year too.

Robusta coffee futures on Wednesday hit £1,779 a tonne in London, for January delivery, up 26% from a three-year low reached in early November.

The price gains have been supported by a drop in supplies on international markets prompted by a decision by producers in Vietnam, the top-ranked robusta producing country, and Indonesia to hold back on shipments.

Stocks certified for delivery against London futures "have fallen dramatically from over 5m bags in November 2011 to just 766,000 tonnes in November 2013", the International Coffee Organization said in a report on Thursday.

'Exports will remain strong'

However, that discipline looks unlikely to last for long, given the strength of Vietnam's ongoing harvest, which the US Department of Agriculture bureau in Hanoi upgraded to 29.0m tonnes, in line with market expectations, but 4.2m tonnes above the department's official estimate.

"Given record production, exportable supplies will also be high," the bureau said, highlighting "limited storage capacity throughout the green coffee bean value chain".

"Despite falling prices domestically and internationally, Vietnamese coffee exports will remain strong."

The bureau raised its estimate for Vietnamese shipments in 2013-14 to 25m bags, also a record.

That is equivalent to more than 2m bags a month – representing a sharp pick-up from the 100,000 tonnes (1.33m bags) recorded in October, the first month of the marketing year.

However, Vietnam is capable of exports well above that level, with volumes in February last year reaching 168,000 tonnes.

Brazilian squeeze

Meanwhile, Brazil - which produces mainly arabica beans, but is a substantial robusta grower too - is also offering a further hope to robusta buyers, with its own hold-out against sales also likely to wane.

"Robusta coffee prices are soaring in the Brazilian market, recovering part of losses registered over the last month," Cepea, the market research centre linked to Sao Paolo University, said.

The price of benchmark type 6 robusta coffee rise 15% to 214.54 reais ($91.84) per bag last month, encouraged by a reluctance by growers to sell into a rising market.

Sellers may remain "refrained" in sales, "waiting for new price rises", Cepea added, quoting conversations with market "players".

However, a "higher volume of coffee may flow from the first months of 2014 on".

In London, robusta coffee futures for January stood at $1,704 a tonne in lunchtime deals, up 0.4% on the day.

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