Bloomberg News

Coffee Harvest in Vietnam Set to Drop From Record on Weather

August 31, 2012

Coffee production in Vietnam, the biggest grower of the robusta variety used in instant drinks and espressos, is poised to decline from a record on drier weather in the key growing region.

The harvest may fall 10 percent to 1.40 million metric tons in the 2012-2013 season starting Oct 1, from an estimated all- time high of 1.55 million tons, according to the median forecast in a Bloomberg survey of six traders and shippers. Rainfall in the Buon Ma Thuot region this year to Aug. 20 was 28 percent lower from a year earlier, according to the Dak Lak province’s Meteorology and Hydrology Department.

A smaller crop could further narrow the spread between the bitter-tasting beans and arabica used to make specialty drinks. Roasters used more robusta in their blends to control prices as arabica surged to a 14-year high in May 2011 after the smallest Colombian crop since 1976 and reduced output in Brazil. The 14 percent gain in robusta this year may increase costs for companies such as Nestle SA (NESN), the world’s largest food maker.

“The weather in my area has been very dry,” which hurts development of the beans, said Mai Ky Van, deputy director at October Coffee Co., a producer in Dak Lak province. “That combined with the two-year cycle, in which output often declines after a bumper crop, means production in the next harvest will definitely drop.”

Growing Demand

Robusta futures ended at $2,064 a ton yesterday on NYSE Liffe. Arabica has slumped 28 percent this year and settled at $1.634 a pound on ICE Futures U.S. in New York. Robusta’s discount to arabica has shrunk to 70 cents a pound, from 145 cents at the end of 2011. The spread will contract to 55 cents by the end of the year, the lowest since July 2009, as demand increases to a record, the average of 10 trader estimates compiled by Bloomberg shows.

Consumption may climb to 66.1 million bags in 2012-2013 from 62.6 million bags, according to Volcafe, the coffee unit of commodities trader ED&F Man Holdings Ltd. Usage was 54.8 million bags in 2010-2011, data from the Winterthur, Switzerland-based trader showed. A bag weighs 60 kilograms (132 pounds). Inventories in warehouses monitored by NYSE Liffe in London have fallen 66 percent from a record in July 11, 2011.

Vietnam may ship 120,000 tons in August, according to preliminary figures by the General Statistics Office in Hanoi, more than triple the amount in the same period last year. Exports in the first eight months were estimated at 1.28 million tons, up 32 percent from a year earlier.

Rising Exports

“Looking at export figures, we can see that a lot of coffee keeps coming out,” said Le Tien Hung, Dak Lak-based deputy director of Sept. 2nd Import-Export Co. “The 2011-2012 crop is definitely larger than expected.”

Production in Vietnam will be about 25 million bags in the season ending in September, said Dutch trader Nedcoffee BV.

The 2012-2013 crop may decline 15 percent as flowers that blossomed early dropped off trees, leaving no beans, Luong Van Tu, chairman of the Vietnam Coffee & Cocoa Association, said in June. Output for 2012-2013 was estimated at 1.3 million tons in a Bloomberg survey published Aug. 6.

“There was little rain or no rain” in the 10 days through Aug. 20 in most regions of the Dak Lak province, the Meteorology and Hydrology Department said in a statement Aug. 21. The Buon Ma Thuot area received a total of 743.5 millimeters since the start of the year to Aug. 20, less than 1,028.1 millimeters in the same period of 2011 and an average of 1,096.2 millimeters over the past “many years,” according to the statement.

Robusta is harvested mainly in Asia and parts of Africa, while arabica is grown in Latin America and is favored for specialty drinks such as those made by Starbucks Corp. (SBUX:US)

To contact Bloomberg News staff for this story: Diep Ngoc Pham in Hanoi at dpham5@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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