Macro

Robusta Soars to $3,838/Ton Amid Vietnam Drought, Supply Fears

Robusta coffee prices hit a record $3,838/ton amid Vietnam's heatwave, threatening global supply amidst shifting crop preferences.

By Athena Xu

4/3, 13:59 EDT
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Key Takeaway

  • Robusta coffee futures hit a record high of $3,838 per metric ton due to dry weather in Vietnam, exacerbating global supply concerns.
  • Arabica futures also surged past $2 per pound, influenced by robusta's tight market and high demand for lower quality arabica beans.
  • The price rally is partly driven by panic buying from roasters with low coverage, expecting prices to decrease.

Robusta Rally Hits Record High

Vietnam, the world's leading exporter of robusta coffee, is witnessing a significant surge in prices due to a heatwave that threatens production. The most-active robusta coffee contract in London soared by as much as 4.8% to $3,838 per metric ton, marking a record high since data collection began in 2008. This year alone, futures have climbed more than 30%. London-based importer DRWakefield highlighted concerns over weather conditions and potential water shortages for irrigation, which could adversely affect the output in the upcoming season. This tight supply scenario is not only pushing robusta prices higher but also affecting the premium arabica coffee market, where futures in New York have crossed the $2-per-pound threshold for the first time since December.

Weather Woes and Crop Shifts

Vietnam's coffee-growing regions are experiencing hot and dry conditions, with rainfall at the lower end of the 10-year range and temperatures on the higher side. The allure of more profitable crops such as durian, avocados, and passionfruit is already impacting coffee production, with exports expected to decline by as much as 20% from the previous year's 1.67 million tons. The last harvest's output was up to 20% lower than the 1.84 million tons gathered the year before, a situation exacerbated by climate change, lack of investment, and the shift to alternative crops. Nguyen Nam Hai, chairman of the Vietnam Coffee Association, noted that stockpiles with farmers and buying agents are minimal, indicating a tight supply situation.

Global Coffee Market Dynamics

The global coffee market is currently influenced by a mix of bullish and bearish factors. On the bullish side, robusta coffee inventories have fallen to a record low, and arabica coffee prices are being supported by excessively dry conditions in Brazil, another major coffee producer. However, bearish factors include a report from the International Coffee Organization showing a significant increase in global coffee exports and projections of increased coffee production in Brazil and Vietnam, which could potentially ease the tight supply situation. Additionally, the El Nino weather event expected later this year could bring drought to Vietnam's coffee areas, further impacting production.

Street Views

  • Traders at DRWakefield (Neutral on Robusta coffee):

    "Weather conditions are not encouraging. There are still concerns over a possible water shortage for irrigation, which may hurt the output of the next season."

  • Ilya Byzov, Sucafina (Neutral on Coffee market):

    "The latest rally can also be attributed to panic buying by roasters who have let their coverage run low due to the elevated price environment in expectation of prices to ease."