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 Thursday. 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 boost robusta prices for a second year. Rising consumption in Indonesia will cut supplies from the third-largest robusta grower, a Bloomberg survey showed. The global coffee market may swing to a deficit as output drops in Vietnam and Brazil, the top producer of the more expensive arabica variety, according to Hackett Financial Advisors Inc. Arabica beans are brewed by specialty companies including Starbucks Corp., and robusta 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 Thursday. "Insufficient water will hurt the development of fruits and they may be smaller."
Robusta for May delivery fell 0.1 percent to $2,105 a metric ton at 12:44 p.m. on NYSE Liffe in London, for a gain of 9.4 percent this year. Prices climbed 6.3 percent in 2012 as some roasters increased consumption of the cheaper beans. Arabica for May delivery dropped 0.4 percent to $1.4265 a pound on ICE Futures US in New York. Robusta's discount to arabica was 47.07 cents a pound, down 17 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, warning 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.
"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.
Farmers have probably sold 60 percent to 70 percent of the crop, Keith Flury, an analyst at Rabobank International in London, said in an e-mail Thursday.
Beans in Dak Lak climbed 1 percent to 42,300 dong ($2.02) a kilogram (2.2 pounds) Thursday, extending their gains this year to 10 percent, data from the Daklak Trade & Tourism Center show.
The average water level in rivers and streams in the last eight days of February was 0.5 meter to 0.7 meter lower than the same period last year, according to a report on Friday from the meteorology and hydrology department. The average water level in the first 10 days of March is forecast to drop 0.3 meter to 0.5 meter from the same period a year ago, the department said.
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.
Exports from Indonesia may total 450,000 tons from a record 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 U.S. Department of Agriculture.
"The Vietnamese are selling less and have less to sell and exports out of Indonesia have not been too strong," Flury said in the e-mail. "Where is it all going to come from for the next six months?"
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.