Indonesia coffee premiums fall, undercut Vietnam prices

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Premiums for Indonesian robusta fell to their weakest level since April on Thursday after farmers increased deliveries to raise cash ahead of a Muslim festival, spurring buying by local roasters.

The fall in premiums to $80-$100 a tonne, down from $200 last week, may also prompt foreign buying as sellers in rival producer Vietnam are still offering robusta at premiums of up to $130 to London futures, their highest in two years, dealers said.

Daily arrivals in the main growing island of Sumatra jumped to as high as 3,000 tonnes, compared with about 1,000 tonnes in mid-May. Indonesia, the world's third-largest coffee producer, is also the second-largest grower of robusta after Vietnam.

"The beans have been traded at $100 premiums FOB. We also see offers at $80 but only from small suppliers who want to sell 36 or 40 tonnes of beans," said a dealer in Sumatra, referring to the grade 4,80 defect robustas.

"Many trading houses are still focusing on fulfilling deliveries. Premiums have come down because supply is improving and also because London futures have gone up."

Dealers saw buying interest from local roasters and processed food producers, such as PT Mayora Indah. Strong domestic demand will boost Indonesia's consumption in 2013/14 by nearly a third to more than four million 60-kg bags, according to a Reuters poll.

Heavy rains during the current crop in Sumatra have disrupted deliveries from plantations and the drying of beans. Premiums jumped as high as $200 a tonne earlier this month, the highest since 2012, although deals were struck at $150 premiums.

Differentials for Vietnam's grade 2, 5 percent black and broken beans were steady at $100 to $130 a tonne this week as farmers held on to their beans, hoping for higher global prices and better returns.

Indonesia and Vietnam together account for nearly a quarter of the world's coffee output. Robusta is either blended with higher-quality arabica beans for a lower-cost brewed coffee or processed into instant coffee.

"We haven't bought more Vietnamese beans so far. We're trying to get more beans from Indonesia. It's still much cheaper. I think we should be able to get the 80 defect beans at less than $100 premiums in bulk," said a dealer in Singapore.

"You can see supply is coming in," he added.

Indonesian farmers were selling more beans to trading houses as the weather improved and because they also needed extra cash to celebrate Eid al-Fitr in early August, which marks the end of the Muslim fasting month of Ramadan.

Indonesia is the world's most populous Muslim nation.

"Daily arrivals have improved to 2,500 to 3,000 tonnes since last week. I guess farmers need to cover their daily needs," said a dealer in Java, adding that sales had only gone to local buyers at present.

London September robusta ended up $4 at $1,950 a tonne on Wednesday, after jumping to $1,979, the highest price since May 24, tracking New York arabica on fears of a frost threat in top producer Brazil.

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