Vietnam coffee prices to rise on tight supply

Domestic coffee prices in Vietnam, the world’s second-largest producer, could rise more than 6 percent in the second half of this year due to tight global supplies, the Agriculture Ministry said on Wednesday.

* Vietnam coffee prices may hit $2,680-$2,924/T
* Vietnam’s current stocks seen down at 2.5-4.08 mln bags

* Next harvest seen at 23-24 mln bags (Recasts to add trader’s comments paras 9-11, Indonesia’s May exports)

Domestic coffee prices in Vietnam, the world’s second-largest producer, could rise more than 6 percent in the second half of this year due to tight global supplies, the Agriculture Ministry said on Wednesday.

Farmers and exporters in Vietnam, which ranks behind Brazil as top producer, may take the opportunity of higher prices of Vietnamese coffee later in the year to hold on to their current stocks, traders in Ho Chi Minh City said.

But the market outlook for the later part of the year looks mixed as foreign traders have forecast Vietnam to have a bumper harvest in the October 2011/September 2012 crop, with output rising to 22-24 million bags from 20-22 million bags under the ongoing 2010/2011 season.

Still, robusta supplies from the next harvest will not flood the market until early December when farmers in the Central Highlands crank up cherry picking.

Vietnamese coffee prices could strike between 55 million dong and 60 million dong ($2,680-$2,924) a tonne later this year, the Agriculture Ministry said in its monthly report.

Export prices rose to $2,555 a tonne on May 26, up 4.2 percent from $2,451 on May 1, tracking higher prices on international markets, it said.

The forecast price, which would set a record high, represents a rise of at least 6.5 percent from the 51.5-51.8 million dong a tonne in the Central Highlands coffee belt on Wednesday.

Coffee prices are set to stay high, as farmers increased maintenance and fertiliser use will not boost output sufficiently to match growing demand. Arabica hit a 34-year high in May on tight supplies of high quality beans, but as coffee trees take around three years to produce crop, output is not keeping pace with demand. [ID:nLDE74I1JQ]

“We have also anticipated a rise in Vietnamese coffee prices later this year, given the actual tightness on domestic markets,” a trader with a major European firm in Ho Chi Minh City said.

“Those who have stocks are not under pressure to sell, so purchases could be difficult in coming months for exporters short of beans who may have to buy at higher prices,” he said. adding that the overall volume is small.

But the risk of defaults are low because the pace of Vietnam’s selling has subsided due to the current limited supply, he added.

MORE INVESTMENT IN RAISING YIELDS

Rising prices may also prompt Vietnamese growers to further expand planting areas or invest more to raise yields on the current trees in coming years, while roasters may have to pass on additional costs to coffee drinkers worldwide. [ID:nL3E7GA07R]

Domestic prices have so far this year risen 39 percent from the end of 2010 and up 2 percent in the week ending Wednesday.

Vietnam’s coffee prices closely track London robusta futures market, where the July contract ended $8 higher at $2,602 a tonne on Tuesday, although the market again failed to keep pace with ICE arabica coffee. [ID:nLDE74U24O]

“The coffee price of our country is forecast to rise further due to tight global supply, while stocks are down and demand rises,” the farm ministry’s report said. It gave no details on the current stocks or estimates of the global supply.

OUTPUT BELOW CONSUMPTION

Supplies of high-quality arabica coffee have been particularly tight with key supplier Colombia suffering three consecutive below-par crops. [ID:nLDE74F192]

Supply tightness helped to propel arabica coffee prices on ICE to a 34-year high in May.

While the 2010/2011 output could rise 8 percent from the previous season to 133 million bags, consumption last year expanded at an annual rate of 2.4 percent to 134 million bags, the International Coffee Organization (ICO) said in its April report.

Opening stocks of the world’s 2010/2011 crop starting last October dropped 36.7 percent from the previous year to around 13 million bags, the London-based ICO said.

However, Indonesia’s robusta coffee bean exports from the main growing area in southern Sumatra rose 12 percent in May from a year earlier as the harvest picked up, belying worries that continued heavy rains had caused severe damage to unripe cherries and could threaten the harvest. [ID:nL3E7H11RX]

Vietnam’s Agriculture Ministry in its May report retained its forecast of the country’s coffee export volume this calendar year at 1.3 million tonnes, and raised the projection of coffee earnings to $3.0 billion from $2.97 billion predicted in early May. [ID:nL3E7G50JZ]

Vietnamese coffee stocks now available for sale are estimated at between 150,000 tonnes and 245,000 tonnes, or 2.5 million to 4.08 million bags, traders said on Tuesday, down from 4.3 million bags at the same time in 2010.

The leftover volume makes up nearly a fifth of the 2010/2011 harvest. But the high domestic prices will have to take place before supplies jump in December at the peak of the harvest.

Vietnam, the world’s largest producer of robusta beans used mainly for making soluble coffee, accounts for around 14 percent of the world’s output, based on ICO data. ($1=20,520 dong) – Reuters

Tags: Vietnam Coffee, Vietnam coffee prices