Biggest robusta crop at risk as Vietnam suffers drought

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The coffee harvest in Vietnam, the biggest grower of the robusta variety, may decline in the 2013- 2014 season as a drought in the country's top producing region may lead to smaller fruits, potentially boosting prices.

Water levels in reservoirs, rivers and streams in the Central Highlands are much lower due to less rainfall last year, Nguyen Dai Nguong, the head of Dak Lak Meteorology and Hydrology Department, said yesterday. Dry conditions are expected to continue this month as the probability of off-season rains is much less than in previous years, he said. The highlands cover five coffee-growing provinces, including Dak Lak, which alone represents about a third of Vietnam's total production.

A smaller crop in the country may extend a second year of gains for robusta, further narrowing its price difference with the more expensive arabica variety. The global coffee market may swing to a deficit in the year starting October as output drops in Vietnam and Brazil, the biggest arabica grower, according to Hackett Financial Advisors Inc. Arabica beans are brewed by specialty companies including Starbucks Corp., and robusta is used by Nestle SA for instant drinks.

"Looking at low water levels at reservoirs, I can see the risk that the next crop will decline sharply," Cao Van Tu, chairman of Dak Lak-based Ea Pok Coffee Co., said by phone yesterday. "Insufficient water will hurt the development of fruits and they may be smaller."

Shrinking discount

Robusta for May delivery climbed 0.5 percent to close at $2,108 a metric ton on NYSE Liffe in London yesterday, up 9.6 percent this year. That's after a 6.3 percent rise in 2012 as some roasters boosted consumption of the cheaper beans. Arabica for May delivery fell 0.2 percent to $1.432 a pound on ICE Futures U.S. in New York. Robusta's discount to arabica was 47.58 cents a pound, down 16 percent this year.

Water levels at many reservoirs in Vietnam's central provinces are only at 20 percent to 50 percent of designed capacity, the government said on its website Feb. 26, saying the drought may hurt rice and coffee crops. Farmers irrigate crops by pumping water from reservoirs and wells before the rainy season starts in May.

Production in the country, where harvesting starts in October, probably dropped 15 percent to 1.41 million tons in 2012-2013 from a record 1.65 million tons a year earlier, according to the median of eight trader and shipper estimates compiled by Bloomberg in a survey published Feb. 1. Farmers may have sold 570,000 tons, or 40 percent of the harvest, less than the 45 percent sold a year earlier, the survey showed.

Price advance

"The drought will add to farmers' reasons for holding back coffee sales," said Tran Tuyen Huan, Ho Chi Minh City-based general director of Asia Commodities Joint-Stock Co. "Any delays like that in the supply chain will certainly impact prices," he said, referring to the limiting of sales.

Beans in Dak Lak were 41,900 dong ($2) a kilogram (2.2 pounds) on Feb. 27, extending their advance this year to 9.4 percent, data from the Daklak Trade & Tourism Center show.

The average water level in rivers and streams in the last 8 days of February was forecast to drop 0.1 meter to 0.3 meter compared with the same period last year, according to a report from the meteorology and hydrology department.

The drought has prompted early irrigation, which may lead to an early harvest, Ea Pok Coffee's Tu said. If coffee is harvested in the rainy season, the quality will be affected, he said. Coffee trees in Vietnam usually flower and form fruits between January and March, according to growers.

Declining supplies

Exports from Indonesia, the third-largest grower of robusta, are set to drop to a two-year low as rising domestic consumption cuts supplies from a record harvest. Sales will total 450,000 tons from a harvest of 640,000 tons in the year starting April 1, according to the median of seven exporters' estimates compiled by Bloomberg. Local usage almost doubled in the past decade to 149,400 tons, according to the US Department of Agriculture.

The global coffee deficit may be 2 million bags of 60 kilograms (132 pounds) each from an estimated surplus of 9 million bags this season, Shawn Hackett, president of the Boynton Beach, Florida-based company, said Feb. 24. Coffee is the best bet in the soft-commodities segment, he said on Feb. 5.

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