Vietnam's coffee premium doubles as local sales come to a stop

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Buyers of coffee from Vietnam, the world's largest producer of the robusta variety used in instant drinks, are paying a bigger premium for their beans as local sales came to "a complete stop," according to Volcafe Ltd.

Beans from Vietnam for shipment in April and May were at a premium of $50 a metric ton to the futures price on the NYSE Liffe exchange in London, said Volcafe, the coffee unit of commodities trader ED&F Man Holdings Ltd. That is double the $25 a ton premium a week earlier, according to the company.

"Differentials strengthened and are not weakening at all," the Winterthur, Switzerland-based trader said in a report e-mailed today, referring to a discount or a premium paid to obtain physical coffee in relation to the price on the futures market. "Sales have come to a complete stop."

Local prices reached 43,200 dong ($2.06) a kilogram (2.2 pounds) on March 5, the highest since Oct. 3, data from the Daklak Trade & Tourism Center on Bloomberg show. Robusta coffee futures on NYSE Liffe climbed 3 percent this week as growers held back beans amid a drought that may reduce the crop that starts Oct. 1.

Sales probably reached 820,000 tons, or 57 percent of the crop, less than the 60 percent a year earlier, according to the median of 11 trader and shipper estimates compiled by Bloomberg. Water levels at many reservoirs in the central provinces are 20 percent to 50 percent of designed capacity, the government said Feb. 26. Drought may hurt the crop, it said.

"˜Strong hands'

"Coffee in strong hands, speculating on higher prices and with the continuing dry weather and low water reserves, speculation will continue," Volcafe said. Demand is "still strong," especially for second half of the year, it said.

In Indonesia, the second-biggest producer, the premium paid by buyers remains "firm," Volcafe said. Indonesian beans were $50 a ton above the exchange price for shipment in April and May, unchanged from last week, data from the trader show.

"Differentials for nearby shipment remain tight at the moment as crop has not started yet," Volcafe said. "Local roasters continue to be actively buying in domestic market. As they can afford higher prices than the exporters, prices will remain high until their commitments are filled or the new crop will start to pressure in April or May."

In India, prices are falling after the government announced an additional 2 percent incentive for coffee to be shipped before March 31, according to Volcafe.

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