’Flood’ of Vietnam coffee to scupper price revival

The return of coffee futures to gains on Monday, rebounding from losses of some 20% this month, may prove short-lived, as Vietnamese supplies “flood” the market, and South American producers sell.

Rabobank forecast price falls in the range of soft commodities, foreseeing raw sugar falling to 22.0 cents a pound by the April-to-June quarter next year, on a spot contract basis, and cotton dipping to 85.0 cents a pound.

And it cut by $100-150 a tonne its price estimates for New York cocoa futures citing “good rainfall… and pod counts” in West Africa although – at for example levels of $2,750 a tonne in the first quarter of 2012 – the forecasts remained above levels markets are pricing in.

However, the analysts foresaw coffee futures considerably underperforming the current futures curve in both New York and, in particular, London.

Seven-month low

London robusta coffee futures were forecast to average $1,400 a tonne in the April-to-June period next year – 31% below the level that the May futures contract is trading at.

The market for robusta beans, generally deemed less good quality than arabicas, will “likely be weighed down by the large crop forecast for Vietnam”, Rabobank said.

Indeed, domestic prices in Vietnam, the top robusta producer, fell on Monday to 43.3m-43.5m dong ($2,079-2,088) per tonne on Monday, the lowest in seven months, ahead of a harvest set to begin next month, and produce 21m bags, according to an analysts’ poll, a rise of 13.5% year on year.

Brazil rains

Meanwhile, arabicas, of which Brazil is the top producer and exporter, will fall to 180 cents a pound by the second quarter of 2012, some 25% below the price of New York’s May contract.
Forecasts of rain in Brazilian coffee-growing districts have been “bearish for prices, and have likely amplified” the impact on arabica values of the broad market sell-off prompted by macro-economic fears.

“The rainfall may help alleviate dry conditions and potentially signal an end to the dry period, which would support flowering for the 2012-13 crop,” Rabobank said.

And, with the real depreciating sharply against the dollar this month, New York prices remain attractive for growers.

“Expectations of impending Central American and Colombian harvests reaching the market soon may lead to farming selling and help ease [New York] prices.”

‘Sub-200-cents-a-pound coffee…’

Separately, James Mound, at MountTradeSignals, also warned over the impact on both robusta and arabica markets as “speculators realise Vietnam is flooding the world with coffee”.
“Sub-200-cents-a-pound coffee here we come,” he said.

However, New York’s December arabica coffee contract, which ended on Friday at an eight-month closing low, rebounded to close up 1.9% at 235.95 cents a pound on Monday, as risk assets such as agricultural commodities and shares rose amid hopes of a solution for the eurozone crisis.

London’s November robusta contract, which finished the last session at a 2011 low, regained 0.3% to $1,954 a tonne.

Source Agrimoney.com

Tags: Vietnam Coffee, Vietnam coffee prices