Markets & Prices

Last updated: Wednesday, March 20, 2019


Coffee Prices Recover Slowly

Posted: Tuesday, July 31, 2018

Following the downward trend in the second quarter, coffee prices may recover gradually in the long term, with the price in the Vietnamese market likely to reach VND38,000 - 42,000 per kilo, according to experts.

International markets
According to the International Coffee Organisation (ICO), world coffee output was estimated at 159.66 million bags in the 2017 - 2018 crop year, up 1.2 per cent from a year earlier. Particularly, Arabica coffee output was projected to shrink 4.6 per cent to 97.43 million bags while Robusta coffee output was forecast to rise by 12.1 per cent to 62.24 million bags.

The United States Department of Agriculture (USDA) also made similar forecasts for the 2017 - 2018 crop year, with 159.8 million bags of coffee, including 94.9 million bags of Arabica coffee and 64.9 million bags of Robusta coffee. Coffee exports were estimated at 130.8 million bags.

Global coffee consumption was projected at 158.7 million tonnes in the 2017 - 2018 crop year, 1.02 per cent higher than the previous crop. The five biggest consumer markets are the European Union, the United States, Brazil, Japan and the Philippines.

World coffee prices tended to fall further towards the end of the second quarter after the United States Federal Reserve (Fed) decided to raise interest rates and global coffee production was forecast to hit a record on good harvests in Brazil and Vietnam. At the same time, real, the Brazilian currency, weakened against the US dollar, forcing Brazilian farmers to increase sales. According to experts, the US - China trade war will affect trade in goods in general, including coffee. In the second quarter, both Robusta coffee and Arabica coffee exchanges shrank and trading performance was weakest since early 2016. On June 29, the last trading day on the coffee exchanges, Robusta coffee for September delivery was traded at US$690 per tonne, 3.5 per cent lower than the first quarter. Arabica coffee for September delivery sank 5.9 per cent to USS1.151 per pound in the same period.

Domestic market
A chart that illustrates world coffee supply for the 2017-2018 season built by ICO shows that Vietnam remains the world's second largest coffee producer after Brazil. According to the USDA’s estimate, Vietnam's 2017 - 2018 coffee output will reach 29.3 million bags, the highest level in the last four crops. Specifically, Robusta coffee and Arabica coffee was projected to harves 28 million bags and 1.3 million bags, respectively. And, Vietnam will thus become the largest Robusta producer in the world and the world's 11th largest Arabica producer.

By export, the USDA predicted that Vietnam will export 27.65 million bags in 2017 - 2018, an increase of 100,000 bags over the previous crop. In the domestic market, coffee consumption may reach a record of 2.88 million bags in 2017-2018. End-of-period inventories will fall to about 1 million bags, according to the USDA.

Nevertheless, according to merchants, Vietnam’s domestic supply is quite limited due to the harvest last year was not as good as expected. At present, farmers have only 10 per cent left of their production in the 2017 - 2018 season. Companies have to date exported nearly two-thirds of coffee in stock and they tend to wait for higher prices to sell the rest.

According to the General Department of Vietnam Customs, coffee exports reached 57,700 tonnes worth US$108.2 million in the first half of July, down 29.7 per cent in volume and 31 per cent in value over the second half of June. In the year to July 15, the country’s coffee exports totalled 1.09 million tonnes valued at US$2.11 billion, up 10.5 per cent in volume but down 5.5 per cent in value over the same period of 2017.

Coffee shipments declined since April. The average coffee export price was US$1,877 per tonne in the first half of July, down 2 per cent from the first 15 days of June. In the year to July 17, the average coffee export price was US$1,924 per tonne, down 14.5 per cent from the same period last year.

“Trading is sluggish because farmers do not want to sell for less than VND37,000 per kilo,” said a trader in Dak Lak province. The coffee price update showed that the price ranged VND34,700 - 35,700 per kilo on July 25 in the Central Highlands, an increase of VND100 from a day earlier. The prices in Cu M'gar and Ea H'leo districts were highest and in Di Linh district was lowest. The coffee price delivered at Ho Chi Minh City Port increased by VND100 to VND36,900 per kilo.

Forecast for 2018 - 2019 season
In the 2018 - 2019 crop, world coffee production was forecast to rise by 11.4 million bags over the previous year to a record 171.2 million bags. World coffee consumption was estimated at a record of 163.2 million bags, pushing the export to 136.2 million bags. Inventory is expected to pick up to 32.8 million bags after three consecutive years of decline.

In the 2018 - 2019 season, Vietnam’s coffee production was anticipated to increase by 600,000 bags to a record 29.9 million bags, of which Robusta coffee output is 28.5 million bags and Arabica coffee output is 1.4 million bags. The coffee acreage is expected to expand slightly over last year, with nearly 95 per cent of the area growing Robusta coffee.

Domestic consumption was expected to further expand to a record 2.99 million bags in this season. On export, Vietnam was hoped to sell 27.9 million bags in the world market, the highest level since 2016 - 2017. In particular, coffee bean shipments will rise by 200,000 bags to 25.2 million bags. End-of-period inventories will look up to 1.2 million bags due to large supplies.

Mr Phan Xuan Thang, Vice President of the Vietnam Coffee Association, coffee prices may recover to VND38,000 - 42,000 per kilo in the long term.

Nguyen Thanh

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