Indonesia's Heavy Rains Push Robusta Coffee Stocks to 13-Year Low

Traders are watching nervously as heavy rainfall in Indonesia’s key coffee-growing regions and a delayed harvest in Vietnam threaten to shrink global Robusta coffee supplies to their lowest level in over a decade. With both major suppliers facing production disruptions, the balance between supply and demand is tightening rapidly—and the market is starting to feel the squeeze.

Yes, according to Bloomberg’s survey of traders, London International Financial Futures and Options Exchange (Liffe) coffee stocks could fall 34% by the end of 2013 to 52,000 metric tons—the lowest since May 2000. During that time, futures prices are expected to rise as much as 13%, potentially topping $2,000 per ton.

Why Robusta Supplies Are Tightening

Indonesia has been hit by unusually heavy rainfall since April. According to weather service MDA Weather Services, rainfall in the country has been twice the 30-year average. The downpours have slowed both coffee harvesting and drying—two critical steps in getting beans to market. Dutch trader Nedcoffee BV, which operates in Indonesia, reports that farmer deliveries are running 16% behind last year’s pace. Since mid-May, inventory levels have dropped 38%. Meanwhile, Vietnamese traders are holding back their stock in anticipation of higher prices.

The Bigger Market Picture in 2013

The instant coffee market, which relies heavily on Robusta beans, is still projected to grow 3.6% in 2013, reaching a record $29.2 billion. However, despite price drops earlier in the year, both Robusta and Arabica coffees were considered over-supplied by many traders. Macquarie Bank data shows Robusta production for the 2013–14 season rose 3.8% to 65.3 million bags, but demand increased only 1.6% to 63.8 million bags. Arabica had an even larger surplus of 4.2 million bags (about three times bigger). Each bag weighs 132 pounds.

What’s Happening with Prices

So far in 2013, Robusta coffee futures on Liffe have fallen 7.9% to $1,772 per ton, while Arabica futures on ICE have dropped 18% to $1.1835 per pound (approximately $2,609 per ton). In contrast, the S&P GSCI commodity index, which includes crude oil, cotton, and cocoa, has risen 0.8%. Broader markets have fared better too: the MSCI World Index gained 9.6%, while the Bloomberg U.S. Treasury Index fell 3.6%.

Vietnam’s Role and Future Outlook

In Vietnam, the world’s largest Robusta producer, second-quarter coffee prices dropped 13%. Farmers are still holding around 140,000 tons of beans from the previous harvest. Once prices begin to climb, those stocks could enter the market. However, the new harvest typically starts shipping in December and takes about a month to reach Europe—meaning no new supply will arrive in the coming months. Local traders and freight companies expect Vietnam’s 2013–14 coffee crop to hit a record 1.7 million tons, up 17% from the previous year. Tong Teik Pte, a local coffee company, attributes this to expanded planting and favorable rainfall. They predict prices will spike to $2,050 per ton next month, then fall back to $1,850 by year-end.

Indonesia’s Weather and Export Trends

Rainfall in Indonesia is expected to return to more normal levels over the next two months, which should help farmers dry beans properly and speed up exports. However, between January and August 2, 2013, Indonesian coffee shipments were already down 25,000 tons compared to the same period last year, totaling just 129,844 tons.

Frequently Asked Questions

Why are Robusta coffee stocks so low right now?

Robusta stocks are at a 13-year low due to heavy rains in Indonesia that delayed harvesting and drying, and a three-month delay in the Vietnam harvest. Combined, these factors have sharply reduced global supplies, with Liffe stocks expected to fall 34% to 52,000 tons by the end of 2013.

How much could Robusta coffee futures prices rise?

Robusta coffee futures on the Liffe exchange could rise as much as 13% by the end of 2013, potentially breaking $2,000 per ton, according to a Bloomberg survey of 10 traders.

When will Vietnam’s new coffee harvest arrive?

Vietnam’s new coffee harvest is expected to begin shipping in December 2013 and take roughly one month to reach Europe. This means no new supply is likely to enter the market for several more months.

What impact is weather having on Indonesian coffee production?

Unusually heavy rainfall in Indonesia since April—double the 30-year average—has slowed both the harvesting and drying of coffee beans, reducing the rate at which farmers can deliver their crop and contributing to tight supplies.

Are Arabica coffee supplies also tight?

While Arabica prices have also fallen in 2013, the market has a larger surplus. Arabica coffee had a supply surplus of 4.2 million bags (three times bigger than Robusta’s gap), indicating less immediate pressure on those supplies.

What do Vietnamese traders expect for coffee prices next month?

Vietnamese traders and analysts, including Tong Teik Pte, predict Robusta coffee prices could surge to $2,050 per ton next month due to tight supplies, before easing to around $1,850 by the end of the year.

FrontStreet Coffee Picks for Robusta Lovers

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