Vietnam's coffee production will hit a record next harvest,
helping exports to an all-time high too – but that may not be as bearish for
prices as a 4% slump in futures would indicate, analysts said.
Vietnam - the second-ranked coffee grower after Brazil, and
the top producer of the robusta variety – will harvest 29.2m bags of beans in
2014-15, the US Department of Agriculture's Hanoi bureau said.
Production at that level would beat by some 170,000 bags the
record set last harvest, and would reflect a further rise, of some 27,000
hectares to 653,000 hectares, in coffee area.
Furthermore, "the weather has been quite favourable for the
development of coffee trees", the bureau said, citing "good rains" in the key
Central Highlands coffee district.
Surveys suggest that "there is fairly good cherry
development at this stage", and that trees, "in general, have produced more
cherries per branch with more productive branches per tree than in previous
The increased harvest will support record exports of some
28.0m bags, a rise of nearly 2.1m bags year on year, as the country reverses
some stockbuilding enabled by the 2013-14 harvest, on USDA bureau forecasts.
The forecast of a further rise in exports "is attributed to
the high available supply from bumper crop production and high carry-in stock
from the previous year".
And it inspired a tumble in prices, with robusta coffee for
July slumping 3.9% to $1,907 a tonne in London, a three-month closing low.
The bureau's production estimate was "larger than expected",
Citigroup's Sterling Smith noted.
However, the bureau's forecasts raised questions among some
analysts, with Judith Ganes-Chase, the influential soft commodities analyst,
questioning ideas of benign weather.
"It has been drier than normal and so it may be difficult to
reach the target," she told Agrimoney.com.
Volcafe, the coffee merchant, has flagged the potential for
a 2m-bag cut to Vietnam production hopes thanks to tree stress, after last
year's record crop – a concept acknowledged by the USDA bureau, which said that
some farmers had expressed "concerns" over trees "overproducing" last time.
Supply vs demand
Furthermore, weather setbacks in India and, especially,
Indonesia, other major robusta producing countries, besides the drought in
Brazil, the top arabica coffee producer, has raised the importance to world
supplies of a strong Vietnamese harvest.
"The market is going to need this coffee," said Ms Ganes-Chase,
head of J Ganes Consulting.
"Remember, record production and record exports are not
bearish if demand is even stronger."
Indonesia's exports are to fall 12.4% to 7.8m bags this
season, and to a seven-year low of 7.2m bags in 2014-15, on USDA attaché estimates.
El Nino factor?
Indeed, Vietnam has achieved a strong pace of exports so far
in 2013-14, starting in October, with volumes totalling 1.10m tonnes (18.3m
bags) by April, equivalent to 2.6m bags per per month.
That implies shipments falling to only 1.3m bags per month for
the remainder of 2013-14 to meet the USDA bureau forecast for 25.0m bags for
the whole season.
"Even then, you are assuming that Vietnamese producers are
willing to sell everything they have," said Mark Nucera, an analyst who has
been recommending his clients to buy robusta coffee derivatives.
"But we do not know if they will be willing to sell 100% of their
"We do not know how concerned they are about El Nino," the weather
pattern linked to warmer Pacific water temperatures which typically causes
dryness in South East Asia, and is regarded as a threat to production of
commodities such as cocoa and palm oil too.