"THE RECORD PRICE OF COFFEE AT 64,000 VND/KG IS SOMETHING THAT NO EXPORTER CAN IMAGINE"

In the past 5 months, domestic coffee prices have continuously set new records. Even this increase is considered "unthinkable" by businesses in the industry because it is too fast.

Supply is running out

On the morning of May 23, the average price of Robusta coffee in the provinces traded at an unprecedented high of 61,000 VND/kg. However, in the afternoon, some localities reported that the price had increased to 64,000 VND/kg. Thus, compared to the beginning of the year, the current coffee price has increased by about 40%.

“The coffee market has never been so volatile, even in August last year, the price of coffee first set at VND52,000/kg but collapsed very quickly after that. 64,000 VND/kg is a price that no other coffee exporter can imagine”, said Thai Nhu Hiep, Chairman of the Board of Directors, Director of Vinh Hiep Co., Ltd - one of the coffee exporters largest in Vietnam, talk to the writer. Mr. Hiep is also the Vice Chairman of the Vietnam Coffee and Cocoa Association (VICOFA).

According to him, the demand for Robusta coffee beans is increasing because consumers around the world are having to "tighten their belts" due to the impact of inflation and economic recession. Meanwhile, drinking coffee every day is a hard habit to break, but Arabica seeds are too expensive for them. Therefore, they look to cheaper Robusta beans to mix with Arabica beans to reduce costs.

However, according to VICOFA data, Vietnam's Robusta coffee production in the 2022-2023 crop is estimated to decrease by 10 -15% compared to the previous crop year to about 1.5 million tons due to the influence in unfavorable conditions of weather and a wave of shifting crops to fruit crops, especially durian, avocado and passion fruit.

At the beginning of October last year, there were new crops, but the collection and drying took place slowly due to the continuous rainy weather during this period. Seed quality can also be affected (lots of eggplant). The proportion of goods on the floor (16,18) is estimated to account for 60% or more

According to data from the General Department of Customs, in the first 7 months of crop year 2022-2023 (from October 2022 to April 2023), Vietnam exported 1.12 million tons.

“Domestic consumption is about 250,000 tons. Therefore, people's inventory is currently about 100,000 tons. Adding 100,000 tons of inventory for the 2021-2022 crop year, the remaining stock is only about 200,000 tons. Meanwhile, the average demand for Vietnam's Robusta coffee imports in the world is 100,000 tons per month, and we still have 5 more months to go to the new crop year. Therefore, the shortage of supply will persist in the near future," said Mr. Hiep.

Data from the General Department of Customs also showed that coffee exports in April decreased by 22% compared to March to 163,000 tons.

According to Mr. Hiep, this is a sign of lack of supply: "Last year, the shortage of goods did not happen until August, but this year, right from March, it was out of stock. When the price returned to the old peak of 52,000 VND/kg at the beginning of the year, people sold a lot at the same time.”

 Mr. Duong Khanh Toan, Director of International Business Development, Import-Export of Me Trang Coffee Joint Stock Company, said that one of the factors that pushed coffee prices over the past time was due to input costs such as fertilizers, labor copper, petrol and electricity increased.

In addition, the speculative factor also contributed to the scarcity of supply. When noticing the negative weather situation, big buyers will collect goods, push up the purchase price, and reduce the available supply of farmers.

"Small and medium-sized roasters like us have a reserve of only about 100 tons per month, which cannot be compared with large buyers, especially FDI enterprises with purchasing power of up to tens of thousands of tons of reserves consolidating goods and then pushing up prices. Currently, goods are concentrated in FDI enterprises and intermediary agents, a few are among the people.

Households who still have coffee have the mentality of waiting for the price to rise further to sell while the demand for collection is still high. This pushes prices up even more,” Toan said.

Big fund is focusing on collecting Robusta coffee

With the coffee derivatives market, the price of Robusta coffee is also at a 12-year peak at $2,572/ton, up 40% from the beginning of the year. Previously, on May 22, coffee price reached 2,777 USD/ton, the highest level since 2008 until now, but then corrected down due to profit taking pressure.

“Many traders find the current coffee price irrational and they sell short. But the funds in the world, with financial potential, are ready to buy goods right from the last months of last year and early this year because they know that the supply is seriously lacking. Hedge funds are willing to squeeze other traders out. Just waiting for the short sellers to close their positions, the funds will "discharge" the goods because there are still 5 months to go until the end of the crop while the global supply is no longer," said Mr. Hiep.

In contrast to Robusta, the Arabica market seems quieter. Although the price is still increasing, the rate of increase is not too "drastic" like that of Robusta beans. As of May 24, the price of Arabica coffee traded at 189 US Cent / pound, up 14% compared to the beginning of the year.

In a recently published report, the International Coffee Organization (ICO) puts the global coffee supply in the 2022-2023 crop year at about 171.3 million bags while consumption stands at 178.5 million bags. With this forecast, the world coffee market may have a deficit of 7.3 million bags in the current crop year.

Domestic coffee prices will set new ground

Mr. Hiep said that after this period of strong fluctuations, coffee prices could establish a new ground of over 50,000 VND/kg after a long time maintaining around 30,000 - 40,000 VND/kg due to oversupply.

Because, in the current context, the balance of supply and demand has gradually shifted to a deficit because people have switched to growing fruit trees, which has narrowed the coffee area. Meanwhile, input costs such as fertilizer, electricity, and labor have all increased. Currently, the cost for 1 hectare of coffee with an output of 3 tons is about 100 million VND.

"If the price stays around 40,000 VND/kg, people's revenue is 120 million VND/ha, profit is 20 million VND. This amount divided by 12 months is not worth it. At least the price is 50,000 VND/kg people earn 50 million dong, then they will return to coffee. Actually, 50,000 dong/kg is not too high a price when fully calculated in the production chain, because now consumers are willing to spend 50,000 - 100,000 VND for a cup of coffee," said Mr.Hiep.