Robusta hits 6-week low but stocks have investors turn bullish

Commodities , Food Aug 27, 2013 No Comments

RobustaCoffee prices on Vietnam‘s domestic market, the world’s largest producer of the variety used in espresso, fell on Tuesday to their lowest since late June, discouraging farmers from selling beans, and driving buyers to the sidelines as they await fresh beans from a harvest due in two months, traders said.

Vietnam’s main coffee-growing region got 35.1 millimeters (1.4 inches) of rain from Aug. 11-20, compared with 20.4 millimeters in the same period last year, according to data recorded at 10 stations and released by the Dak Lak Meteorology and Hydrology Department. Farmers in Vietnam may reap a record crop next season, Commerzbank AG said in a report today.

Robusta beans fell to 37,000 to 37,500 dong ($1.75 to $1.77) per kg in the Central Highlands coffee belt, the lowest since the June 27 price of 36,600 dong per kg, hit by falls in London’s robusta futures market last Friday.

The next crop will be very, very good in Vietnam with very good quality,” Edward de Wismes, a futures broker at Aurel BGC in Paris, said. “On the technical side, robusta is clearly bearish, bearish, bearish, and we are going to be on the resistance level around $1,800 a ton.”

However, robusta coffee climbed for the first time in eight sessions on speculation stockpiles will continue to fall, prompting roaster buying before the next crop starts in October in top-grower Vietnam. Rain in the largest growing regions of Indonesia, the biggest producer behind Vietnam and Brazil, was as much as twice the 30-year average since April, MDA Weather Services says. Inventories certified by NYSE Liffe will tumble 34 percent to 52,000 metric tons by the end of 2013, the lowest since May 2000, the average of 10 trader estimates compiled by Bloomberg shows. Futures will gain 13 percent to $2,000 a ton over the same time, according to the median of seven forecasts. “Rains in Indonesia are still helping the market with some supply delays,” de Wismes indicated. “There’s still good demand for robusta. Supply issues are leaving the market tighter.”

The robusta surplus has yet to show up in exchange-monitored warehouses. Farmers in Vietnam are still storing 140,000 tons from the last harvest after local prices dropped 13 percent in the second quarter, according to the median of nine trader and shipper estimates compiled by Bloomberg and data from the Dak Lak Trade & Tourism Center.
A rally in prices may prompt Vietnamese growers to sell some of the beans they have stored from the current crop. The first significant shipments from the new crop typically are made in December, arriving in Europe about a month later, leaving an absence of new supply for the next several months.

Meanwhile, on the arabica side, a fungus has wreaked havoc in Latin America for several years, ruining a large part of the local coffee harvest. One sixth of all coffee originates in this region, which means that a failed harvest may lead to an uncontrollable rise of the price of coffee.

The plague, discovered several decades ago, has never spread this fast, devastating the Caribbean and Central America last year. Guatemala, following Costa Rica and Honduras in declaring a state of emergency, considers 40% of the harvest to be lost. Peru estimates 25 percent to be lost, with Mexico at ten percent.

Arabica coffee, the most desired coffee in the world, is particularly susceptible to the fungus known as coffee rust, which manifests itself as yellow-orange spots on the plant’s leaves, causing the beans to drop prematurely, shriveling up the stem. This results in a plant worthless for production purposes. The plague now endangers the income of some 300,000 coffee bean farmers.

Its impact on the coffee price currently remains limited as for the third consecutive year the sector expects a record harvest, mainly because Brazil is increasing its production. Possible price hikes are expected later, especially if the fungus reaches Brazilian coffee bean farmers.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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