Vietnam’s coffee farmers flex muscles, raise supply fears

Robusta stocks at Liffe warehouses at lowest in four years Vietnam farmers unhappy with prices below 40,000 dong/kg Expected record 2013/14 harvest unlikely to provide much respite.

LONDON/SINGAPORE, Sept 6 (Reuters) – Vietnamese coffee farmers are making their presence felt on benchmark futures markets, holding back beans to keep domestic prices firm as exchange-certified stocks fall, threatening to send global prices higher.

Exports from Vietnam, the world’s No. 1 producer of robusta beans, have fallen nearly 9 percent in the first 10 months of the current crop year ending September as farmers hoard on hope of higher prices.

Although the new harvest will start next month, the global market is not likely to see an immediate dramatic increase in supply from Vietnam. That could keep robusta stocks in NYSE Liffe nominated warehouses at their lowest level in at least four years.

“This is a very peculiar scenario,” said Joyce Liu, an investment analyst at Phillip Futures in Singapore.

“There’s a shortage in supply in the international market yet supply is abundant in Vietnam. But that may support short- to mid-term prices on Liffe.”

Farmers are estimated to be sitting on large stocks and there will likely be an overhang of beans going into the 2013/14 harvest.

But Vietnamese farmers’ sales of the bean variety used for making instant coffee have been particularly disciplined in the current season as dealers say farmers are better financed.

“Don’t underestimate the farmers withholding power. We were always talking about the farmers as the weakest part in the whole supply chain, that’s no longer valid,” said a European-based trader.

“From December to April, all of the robusta demand worldwide is in the hands of the Vietnamese farmers – there’s nowhere else that can step in and compensate shipping volumes and they know that.”

Vietnam, which accounts for about 15 percent of global output, may produce a record of 30 million bags in the next 2013/14 crop year, up from the current season’s around 25 million bags.

Add to this is at least 2.5 million bags of coffee which are likely to be carried forward from the current season, higher than 2.17 million bags available at the end of the 2011/12 season.

Vietnam’s exports in July tumbled 21 percent to 1.51 million bags from the same month last year, government data shows. October-July exports slipped 8.6 percent to 21.18 million bags as London robusta futures LRCc2 hold near their weakest since October 2010.

NO RUSH TO SELL

Domestic prices in Vietnam, which track London futures, have dropped below the psychological level of 40,000 dong a kg and are currently at three-month lows of 37,250 dong ($1.76) — almost on par with London futures. November robusta coffee futures on Liffe LRCc2 fell $18, or 1 percent, to end at $1,760 a tonne on Thursday.

Farmers are loath to sell below 40,000 dong price and, with local rates having peaked around 46,000 dong in March, many are holding back.

Phan Tam, a 52-year-old Vietnamese coffee farmer, said he can get around 39,000 dong per kg for his coffee now but thinks he can do better if he waits for a while.

“I harvested around 6,000 kg, but have only sold around 1,000 kg so far, and I hope it can reach 45,000 dong per kilo before I have to sell the rest of the crop,” Tam said.

He said he was in no rush to sell as he had saved capital from previous years’ harvests from his small robusta coffee plantation in the Lam Dong province.

Like Tam, other farmers in Vietnam remain unperturbed by the plentiful stocks carried forward from the tail end of the current crop year into the looming new coffee crop.

Slow sales from Vietnam also highlight financing and cash flow problems among the country’s exporters, with the industry plagued by tax evasion, insolvencies, high interest rates and a credit squeeze. (Full Story) (Full Story)

Roasters have been running down stocks in anticipation of the large new crop from Vietnam with some holding stocks to cover only eight or nine weeks’ needs, compared with at least 12 weeks at this time of year in the past.

Certified robusta stocks at Liffe warehouses have almost halved in the past year to 7,875 lots or 78,750 tonnes, their lowest level since the Liffe contract was modified around four years ago, reflecting a drop in supply from Vietnam.

“Roasters are filling the gap until the new crop hits the ground with certifieds,” a trader at an international trade house said. “The critical level is 5,000 lots (50,000 tonnes). For the structure, it’s going to be explosive in the next couple of months.”

Source: Reuters

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