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Robusta futures reach three-month high on tight Vietnamese supply

June 22, 2020

1 mins read

At US$ 74.6/60 kg bag, European robusta futures prices at the International Commodities Exchange (ICE) posted 11-week high averages in the period ending 10th June 2020.  Robusta prices have shown steady upward momentum, since hitting the floor at US$ 69.72/60 kg in late-April. The upward shift is being supported by news of supply tightness in Vietnam, a major supplier to the European market. Indeed, the International Coffee Organisation (ICO) reports that Vietnam exported 2.171 million 60kg bags coffee exports in May 2020, representing a 21% month-on-month (m-o-m) decline and 11% year-on-year (y-o-y) decline. The US Department for Agriculture (USDA) reports that Vietnamese farmers have nearly sold all stock from the 2019/20 marketing year (MY) that ends in September 2020, and are now starting to sell some of the upcoming crop. A tighter Vietnamese supply balance is projected for the upcoming season, supporting a firmer price narrative for 2020/21 robusta contracts.

European ICE prices bottomed in mid-April, as the demand-dampening impacts of the global pandemic, alongside robust Brazilian supply, weighed on the market. Brazil, the second largest robusta supplier, is rapidly gaining ground on Vietnam, increasing its global footprint via technological investments. This enables Brazilian suppliers to utilise economies of scale to drive low marginal costs, which provides a strong competitive advantage against product sold from the ICE.

Vietnam, accounting for roughly 40% of the global robusta market, is anticipated to realise a 3.5% y-o-y drop in production in the upcoming year to 30.2 million bags, due to poor weather and farmers substituting towards more profitable crops.  This provides some bullish sentiment for 2020/21 futures contracts. However, Brazilian statistical agency, Conab expects a strong crop between 14-16 million 60kg bag domestic robusta supply in the current MY, compared to 15 million bags in 2019/20. Thus, a stronger Brazilian crop could offset the expected supply contraction from Vietnam and keep Vietnamese price expectations in check. The potential for a stronger BRL adds some upside potential.

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Topics: Beverages
Ibi Idoniboye
Ibi Idoniboye

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