Coffee Prices Decline in Response to Record Vietnam Crop, Weather Issues
HCMC – Vietnam’s next coffee bean harvest is predicted to produce record amounts. However, this news has been met with dispiriting results in the market – robusta coffee futures for July have slumped 3.9 percent to US$1,907 a ton in London, a three-month closing low, on the news. Coffee prices are expected to dip lower as a result.
Vietnam is a top producer of the robusta variety of coffee bean. According to the U.S. Department of Agriculture’s Hanoi bureau, Vietnam will harvest 29.2 million 60-kg bags of beans in 2014-15.
Partly explaining the increase in the harvest has been the growth in the area used for the farming of the beans, which currently stands at 653,000 hectares – an increase of 27,000 hectares.
However, doubts have been raised about Vietnam’s predicted output. Judith Ganes-Chase, an analyst at the USDA, has pointed out that this year Vietnam “has been drier than normal and so it may be difficult to reach the target (29.2 million bags).”
Much attention has been paid to the outcome of Vietnam’s current crop of coffee beans- the past year has been a tough time all over the world for bean growers. The weather has set back production in major robusta producing countries such as India and Indonesia. Additionally, drought continues to ravage Brazil’s arabica coffee crops.
Indonesia’s robusta exports are expected to fall 12.4 percent to 7.8 million bags this season and to a seven-year low of 7.2 million bags in 2014-15.
Coffee trading at a standstill in London
Physical coffee trading came to standstill this week after roasters and sellers failed to agree on prices amid a volatile market in London.
Benchmark London futures rallied to a 3-week high after plunging to a four-month low last week, but prices failed to stay above the psychological level of US$2,000 a ton.
London robusta futures have gained more than 17 percent this year, mainly driven by recent rallies in New York arabicas and uncertainty over drought damage to crops in the main coffee producer Brazil.
In Vietnam, grade 2, five percent broken beans, were initially offered at par to discounts of US$20 to futures earlier this week. On Thursday, the offers were between US$5 to US$10 below London, versus discounts of US$15 last week.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.
Developing Your Sourcing Strategy for Vietnam
In this issue of Vietnam Briefing Magazine, we outline the various sourcing models available for foreign investors – representative offices, service companies and trading companies – and discuss how to decide which structure best suits the sourcing needs of your business.