Coffee Sales to Slow in Vietnam as Reserves Drop From Record

May 12, 2014 6:01 am ET

(Updates prices in fifth paragraph.)

May 12 (Bloomberg) -- Coffee sales by growers in Vietnam, the biggest producer of robusta beans used by Nestle SA, may slow after stockpiles slumped 54 percent from an all-time high.

Unsold reserves shrank to 390,000 metric tons at the end of April, or about 23 percent of the record 1.7 million-ton crop, according to the median of 10 trader and shipper estimates compiled by Bloomberg. That’s less than 27 percent at the same time last year and the 25 percent average in the past five years, the survey shows. Inventories were 850,000 tons in the week ended March 7, a record for that time of year.

Reduced stockpiles in Vietnam may boost robusta prices, which have climbed 24 percent this year, and narrow the gap with the more expensive arabica variety favored by Starbucks Corp. Arabica jumped 68 percent as drought parched crops in Brazil, which accounts for more than a third of world output. In 2011, when frost damage in Brazil sent arabica to a 14-year high, many roasters added the cheaper robusta to their blends to limit the increase in bean costs.

“There’s a lot of bullish information so farmers will hold onto their remaining stocks,” said Tran Tuyen Huan, Ho Chi Minh City-based general director of trader Asia Commodities Joint- Stock Co. Most beans are now held by wealthy farmers, who can afford to wait for higher prices, he said. Harvesting in Vietnam begins around October.

Robusta futures traded at $2,091 a ton on NYSE Liffe in London today. Arabica was at $1.858 a pound on ICE Futures U.S. in New York, taking its premium over the cheaper variety to about 90.95 cents per pound, up from a five-year low of 27.95 cents in December.

Brazil Crop

The harvest in Brazil will drop more than expected in the 2014-2015 season to 49 million bags, down from a January forecast of 55 million and last year’s crop of 53.3 million, Marex Spectron, a London-based trader, said in an April 10 report. The decline would leave global production 7.1 million bags below demand, Marex Spectron said. That would be the biggest deficit since the 2009-2010 season, U.S. Department of Agriculture data show. A bag weighs 60 kilograms or 132 pounds.

As Brazilian farmers harvest the bulk of the crop from May through July, forecaster Somar Meteorologia predicts an El Nino weather pattern will drop enough moisture in the South American country to cause more damage.

In Vietnam, farmers curbed sales when robusta prices fell to a three-year low in November. They boosted sales as prices surged to $2,218 a ton in March, the highest since 2012.

“Prices above their expectations made farmers happy sellers,” Alexander Gruber, trading manager at Tong Teik Pte, a company owned by RCMA Commodities Asia Pte, said by e-mail.

Domestic Prices

Beans in Dak Lak traded at 41,100 dong ($1.95) a kilogram on May 9, Trade & Tourism Center data show, rebounding from a three-year low of 29,600 dong in November. Dak Lak province represents about 30 percent of the country’s harvest.

“We clearly have passed the selling peak and farmer sales have slowed down,” according to Volcafe Ltd. Growers are estimated to hold 20 percent to 25 percent of the crop, a unit of commodity trader ED&F Man Holdings Ltd., said in an e-mailed report last week.

Vietnam shipped 822,000 tons in the first four months, 39 percent more than a year earlier, the General Statistics Office estimates. Exports will total 25.1 million bags from a record crop of 28.5 million bags in 2013-2014, U.S. Department of Agriculture data show.

El Nino

“I’m not interested in selling at this point as I managed to sell my beans at higher prices in March,” said Phung Van Long, a farmer in Dak Lak. “I’ve also heard the news about El Nino threats in Brazil so I think prices will climb up again.” Long has about 3 tons left from his 17-ton crop.

Farmers may be more hesitant to sell after an increase in transport costs. Authorities on April 1 started a campaign to inspect overloaded trucks by deploying weigh bridges across the country, according to the government website. That raised transport and logistic expenses by about $22 per ton as more trucks are required to carry the same load, the survey shows.

“The increase in shipping costs has been passed on to farmers,” Huan of Asia Commodities said. “At the end of the supply chain, they suffer the most as they have less bargaining power than traders.”