Coffee futures prices broke through $4000! Coffee hoarding, supply shortage and market hype in Vietnam

Recently, the price of Robusta coffee futures has been rising, even setting a record high of 4339 US dollars per ton. At present, the pre-sale price of the latest London Robusta futures in July is 4239 US dollars per ton, while the pre-selling price at the end of September is also 4246 US dollars per ton.

It also pushed up the price of Arabica futures. The rising price of coffee is mainly driven by concerns about cuts in coffee production in several major coffee-producing countries, Brazil, Vietnam, Indonesia and Uganda.

At present, Vietnam is in the dry season, with excessive drought, water levels in many lakes on the central plateau have fallen seriously, and groundwater sources have dried up. Coffee production in Vietnam has been greatly reduced as a result of the withering of coffee plants and yellowing of leaves in the flowering season.

According to a report released by the Vietnam Coffee and Cocoa Association, even if the export data are high, coffee production will be reduced by 20 per cent, which will affect exports in the second half of 2024, and exports will be 20 per cent lower than in the same period last year as a result of tight supply.

Due to the decline in production in the next quarter and the fact that prices are still rising, curry farmers in Vietnam are hoarding coffee beans and are reluctant to sell their coffee beans, even if they are pre-sales orders signed earlier. There have also been a lot of defaults.

According to Bloomberg, about 150000 to 200000 tons of coffee beans failed to be delivered by Vietnamese farmers or traders in 2023, equivalent to 10% of annual production.

Many traders said they had no coffee beans to deliver and suffered heavy losses as a result of breach of contract. Therefore, at present, in order to obtain coffee beans, some traders do not hesitate to increase the price to buy coffee beans, making the current purchase price of coffee in Vietnam as high as 120 million to 125 million dong / ton.

In addition, the current coffee price does not peak, do not rule out the possibility that the purchase price will rise further, the market predicts that the price may rise to 150 million dong / ton.

This has also led to inventory shortages at some coffee companies, such as Nestl é, which says it needs to buy more beans in places such as Brazil, India and Indonesia to maintain global factory supplies.

In addition, South Korea's coffee market is growing. Due to its geographical proximity, South Korea will increase the import of Vietnamese coffee. In 2023, South Korea has imported about 41450 tons of Vietnamese coffee, with an export value of US $93.35 million, an increase of 17.9% compared with 2022. Therefore, Vietnamese coffee in the Korean coffee market is expected to grow in 2024, and the export value is expected to reach US $2.2 billion. This has also increased the competitiveness of Vietnamese coffee in the international market.

In addition, in Arabica futures, although coffee production in Brazil and Colombia is relatively stable, higher cocoa futures prices will also push up coffee futures prices. Earlier, Ivory Coast, the world's largest cocoa producer, fluctuated cocoa prices due to political instability and supply chain disruptions, pushing up global cocoa prices.

Cocoa futures prices in new York and London rose 166 per cent and 189 per cent respectively, coupled with the rise in Robusta futures prices due to reduced production in Vietnam, which had a knock-on effect that pushed up Arabica futures prices.

The rise in cocoa and Robusta futures prices has led to the interest of some investors or large investment companies in the entire soft commodities (cocoa, coffee and sugar), prompting buyers to pay more for coffee futures.

In other words, the rise in coffee futures prices is driven by automated trading schemes and large investment companies, and these market participants react to news of the coffee market, buying large quantities of coffee contracts and capital speculation to push up prices.

In addition, many European and American buyers have turned to Arabica coffee beans from Central and South America, which has also caused the price of Arabica coffee beans to rise. Some coffee raw bean traders revealed that at present, the price of coffee overall raw beans has increased by 20% compared with the same period last year, and the price of Robusta coffee beans has increased by more than 30% compared with the same period last year.