Coffee prices continue to set records, could Vietnam lose its advantage to Brazil?

Robusta coffee prices have not stopped rising as Vietnam’s supply is depleted. Meanwhile, Brazil is entering its robusta harvest season. This raises concerns that Brazil will benefit while Vietnam will not because it has sold out earlier.

The bull run is not over yet

The domestic coffee price increase has not ended yet as June continued to set new records. As of June 12, domestic coffee prices were at nearly VND65,000/kg, up 60% compared to the beginning of the year.

The coffee derivatives market also officially surpassed the important milestone of 2,700 USD/ton, setting a new record. As of June 12, the price of Dao coffee in July was trading at 2,754 USD/ton, about 40% higher than at the beginning of the year.

Shortage of supply in Vietnam, the world's largest robusta grower, is seen as the main driver for the recent sharp rise in prices.

According to Bloomberg , the US Climate Prediction Center has confirmed that the extreme weather phenomenon El Niño (hot and dry weather) has returned, with the level forecast to be from moderate to strong. This threatens the supply of major coffee growing areas such as Vietnam and Indonesia.

According to data from the Vietnam Coffee and Cocoa Association (VICOFA), Vietnam's robusta coffee output in the 2022-2023 crop year is estimated to decrease by 10-15% compared to the previous crop year to about 1.5 million tons due to the impact of unfavorable weather and the wave of crop conversion to fruit trees, especially durian, avocado and passion fruit.

Supply is decreasing, meanwhile, the economic recession has caused consumer demand to switch to using robusta beans to blend with arabica or completely replace arabica because of the increasingly high price.

In addition, the cost of planting has also been pushed up recently due to the increase in fertilizer and gasoline prices. The combination of these factors has caused coffee prices to set a record in recent times.

According to calculations from data from the General Department of Vietnam Customs, in the first 8 months of the 2022 - 2023 crop year (from October 2022 to May 2023), Vietnam exported about 1.27 million tons of coffee.

A representative of a large coffee exporting enterprise shared with us that, as of now, the inventory among people is almost exhausted. The output of the 2022-2023 crop year is about 1.5 million tons, plus the 100,000 tons of the previous crop year, the total supply is 1.6 million tons.

Vietnam exported 1.27 million tons, consumed domestically about 250,000 tons, totaling 1.52 million tons. Thus, the remaining inventory is only about 80,000 tons.

Supply-consumption balance in crop year 2022-2023 (H.My synthesis)

Meanwhile, the average monthly export demand is over 100,000 tons and Vietnam still has 4 months left until the end of the crop year.

The shortage is reflected in the consecutive decrease in export volume from March (210,372 tons) to May (150,000 tons).

Data: General Department of Customs (compiled by H.Mị)

In an interview with Reuters , traders said that coffee prices will remain high at the moment and show no signs of going down. Although prices continue to increase, exporters and farmers do not benefit much.

For the people, they had already sold out their goods. As for the export enterprises, due to the high financial costs, they did not have the capital to import goods at the previous stage.

Talking to the writer, Mr. Thai Nhu Hiep, Chairman of the Board of Directors and Director of Vinh Hiep Company Limited, said that when the price reached its old peak of 52,000 VND/kg at the beginning of the year, people sold a lot of coffee. Therefore, currently, although the price of coffee has reached 64,000 VND/kg, the remaining inventory is not much.

“Many businesses with strong capital have been buying goods since the end of last year. When the price of coffee rose to around 52,000 VND/kg, people sold very strongly, buying as much as they sold. Now the price has been pushed up to 64,000 and I think the price can be pushed up to 70,000 VND/kg,” said Mr. Hiep.

Will Brazilian Robusta Coffee Benefit?

Brazil, the world's second-largest producer of robusta, began harvesting in May. Bloomberg quoted Kona Haque, head of research at ED&F Man, as saying that the recent sharp rise in robusta prices could encourage Brazilians to export more of the bean in the coming time. However, he also stressed that there was a shortage of goods everywhere.

Bloomberg estimates that Vietnam’s coffee output this year will be the lowest in four years. Brazil’s output is expected to fall by 5%. Indonesia’s robusta output could fall by as much as 20% due to unfavorable weather.

An expert in the Vietnamese coffee industry said that the supply of Brazilian robusta coffee cannot meet the demand. Because, unlike Vietnamese products, Brazilian robusta beans can only be used in instant coffee processing and cannot be roasted or blended with Arabica beans.

According to data from the International Coffee Organization (ICO), Brazil's robusta coffee exports in the 7 months of the 2022-2023 crop year (from October 2022 to April 2023) also decreased sharply by 36%.

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