HCM CITY: Global supplies of robusta coffee used in espresso and instant drinks are set to tighten further as a heat wave threatens production in top exporter Vietnam, compounding losses from farmers switching to other crops.
"Overall, the coffee-growing regions are hot and dry,” Ho Chi Minh City-based Tuan Loc Commodities said in a note.
"While we are still in the dry season and this weather is not unexpected, it’s noteworthy that rainfall has been at the lower end of the 10-year range, and temperatures are on the higher side.”
The attraction of alternative crops such durian, avocados and passion fruit is already taking its toll on coffee production in Vietnam. Exports are expected to decline as much as 20% in the year through September from the 1.67 million tonnes shipped a year earlier, according to the nation’s coffee association.
The last harvest is now over and output is seen as much as 20% lower than the 1.84 million tonnes gathered the year before, said Nguyen Nam Hai, chairman of the association. That’s greater than the 10% decline projected in November, and reflects climate change, lack of investment and growers planting other crops.
The shift to other crops is taking a bigger bite out of production, Hai said in an interview, adding stockpiles with farmers and buying agents are "not much.”
The drop in production helped drive robusta futures in London up by more than 50% in the past year to the highest since at least 2008. Prices in Vietnam have more than doubled from a year earlier to a record, said Hai, who sees the market staying firm through May when harvests start in Brazil and Indonesia.
The crop later this year in Vietnam may do little to relieve the supply tightness.
"Concerns about potential water shortages for the next irrigation cycle are valid, in which case farmers may prioritize irrigation for more profitable crops like durian over coffee,” Tuan Loc said. - Bloomberg
