Coffee growers in Vietnam curb sales as production drops

Bloomberg

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Workers lay washed coffee cherries out to dry on a farm in Dak Lak province in Vietnam. Workers lay washed coffee cherries out to dry on a farm in Dak Lak province in Vietnam.

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Coffee farmers in Vietnam, the world’s top supplier of the robusta variety used by Nestle SA, are curbing sales to secure higher prices, aided by cheaper credit which increases their ability to store beans.
Output in the year from Oct. 1 will probably fall about 6 percent to 1.62 million metric tons from a record 1.72 million tons a year earlier, according to the median of 15 trader estimates compiled by Bloomberg. Farmers sold 15 percent of the crop by end-December, compared with 22 percent the year before, the survey shows. Harvesting is almost complete, they said.
Futures climbed 14 percent in London in 2014 as demand exceeded supply. Farmers are harvesting a smaller crop in Vietnam, with trees yielding fewer cherries than the previous year, just as drought threatens to return in Brazil and disrupt supplies from the biggest grower of arabica and the second-largest of robusta. Vietnam has cut interest rates to spur lending and devalued the dong to boost exports.
“Farmers are holding back because they see the crop is smaller and expect higher prices,” said Le Duc Huy, deputy general director of Sept. 2nd Import-Export Co., Vietnam’s second-biggest exporter by volume. “They also have more financial capability with their own savings, better access to bank loans, and lower interest rates.”
Cheap credit
The State Bank of Vietnam’s dong deposit rate cap for terms between one month to less than six months was lowered to 5.5 percent from 6 percent in October. The central bank also asked commercial lenders to lower their rates to help reach a credit growth target. The dong was devalued on Jan. 7 for the second time in seven months, to support exports and investment that helped boost economic growth last year.
Robusta settled at $1,969 a ton on ICE Futures Europe yesterday, rising 2.8 percent this year. Arabica, favored by specialty coffee makers such as Starbucks Corp., closed at $1.769 a pound in New York to gain 6.2 percent this year after a 51 percent jump in 2014. Its premium over robusta was 87.59 cents a pound. While rains in November eased the threat of a persistent lack of moisture, Brazil is suffering from similar dry, hot conditions at the start of the year as in 2014.
Rainfall in Vietnam was also less than a year earlier during the cherry development period. Dak Lak received 251.6 millimeters in September and 102 millimeters in October at 10 stations, including one in neighboring Dak Nong province, compared with 482.8 millimeters and 147.7 millimeters in the same months in 2013, according to the Meteorology and Hydrology Department. Dak Lak supplies about 30 percent of the harvest.
Lower yields
While production this season mainly dropped because of the “off-cycle”, which usually follows a large crop, there also wasn’t enough rain for development of the cherries, Huy said. The difference in yields from the previous crop was especially large among the highly productive varieties, he said.
The latest median estimate for this harvest is about 1.8 percent lower than the 1.65 million tons from a Bloomberg survey of 12 traders published on Dec. 2.
Except for some rains in December, the weather was mostly favorable during the drying period, Huy said. Growers had sold 250,000 tons by the end of December, the survey showed. That compares with 380,000 tons a year earlier.
Volcafe Ltd., a unit of ED&F Man Holdings Ltd., reduced in November its estimate for Vietnam’s crop to 27.4 million bags from 28.5 million bags, saying tree fatigue as well as increased incidence of disease hurt yields.
The global robusta deficit will probably be 3 million bags in the year started Oct. 1, the largest since 2006, said the Winterthur, Switzerland-based Volcafe, which previously estimated a shortfall of 1.9 million bags. Worldwide coffee supply will trail demand by 9.9 million bags in 2014-2015. A bag weighs 60 kilograms or 132 pounds.

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