Coffee prices fall on Brazil news

Tuesday, Jul 30, 2013 08:13

by Nguyen Quang Binh

(VNS) —Coffee prices fell sharply at the beginning of last week after rumours of a frost in Brazil's coffee growing areas dissipated.

Brazil is the world's largest coffee producer and exporter.

On the NYSE Liffe robusta futures exchange in London, September prices closed the week at US$1,921 per tonne.

In the week ending on July 19, coffee prices had risen by $93 per tonne to close at $1,968 following rumours of an imminent cold frost in Brazil's coffee areas.

At this time every year world coffee markets become jittery amid fears global production could be hit if temperatures plummet.

The prices "defrosted" on futures exchanges and domestic markets after a Brazilian meteorologist reported very slight frost in areas in Parana state, which produces not more than 5 per cent of the country's coffee output, Pham Ky Anh, a coffee analyst based in HCM City, said.

The Brazilian Ministry of Agriculture forecast output to reach 48.6 million bags [of 60 kilogrammes each] in the 2013-14 marketing season.

In a poll by Reuters, 32 coffee market players and experts forecast Brazil's output to be 53.05 million bags.

"The world has more than enough coffee when the market players estimated a coffee surplus of about 3 million bags including 500,000 bags of robusta coffee," Anh cited a recent poll survey by Reuters as saying.

In Viet Nam, the domestic market in the Central Highlands came down consequently to VND40,200 (US$2) per kilo from VND41,700.

"Offers of exportable coffee are very thin and expensive, at $80 per tonne over the benchmark of London futures exchange for grade 2.5 per cent black and broken beans because Viet Nam is in the in-between crop period," Anh said.

On the other hand, unsold coffee stocks are in strong hands though bought at high prices, so they do not want to sell at the moment.

"Many coffee stock holders are waiting for another rumour about Brazilian frost, which could push their coffee value higher," a major exporter based in Dak Lak Province said.

"The rumours about Brazilian frost made the coffee price in the domestic market hot. But, at the current level of around VND40,000 per kilo, it is turning to ‘freezing' point."

The Ministry of Agriculture and Rural Development estimated recently that Viet Nam could ship 93,000 tonnes of coffee in July, taking the year's total to around 890,000 tonnes.

But in the 10 months since the coffee marketing season began last October, exports are estimated at 1.27 million tonnes, much less than the 1.38 million tonnes a year earlier.

"The realistic demand for Vietnamese robusta coffee from international roasters is 125,000 to 135,000 tonnes per month," Anh explained.

Viet Nam's coffee output in the 2012-13 crop could reach 24.95 and 25 million bags, US Department of Agriculture (USDA) and Reuters' polls found.

"If we follow Viet Nam's Coffee and Cocoa Association's estimate, at only 20 million bags or 1.2 million tonnes, we don't have any more coffee for export in the two months to come," Anh said.

"The estimates by USDA and Reuters are seemingly more realistic," an exporter based in HCM City said.

Viet Nam's lower volumes and higher prices of coffee encouraged buyers to source coffee at cheaper price in Europe.

By July 22, robusta coffee stocks certified by the NYSE Liffe exchange in London saw a drawdown of 17,500 tonnes, the largest drop in stocks held in the different warehouses nominated by the exchange.

A coffee is approved by the exchange when it satisfies all requirements related to quality stated in the futures contract.

A trader can sell to the exchange only when its coffee has been certified.

A grade 2 certification, normally better than the grade 2.5 per cent black and broken beans that Vietnamese exporters often sell, can only be sold at $30 per tonne below the exchange's benchmark price.

The current offer of FOB HCM City port for Vietnamese robusta grade 2.5 per cent black and broken beans is $80 above the London exchange price, meaning it is $110 higher.

This explains why coffee buyers have chosen spot coffee in European warehouses instead of sourcing from origin, including Viet Nam, the world's biggest exporter of robusta. — VNS

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