Dry spell likely to push Vietnam's coffee output to four-year low

By Reuters June 8, 2016 | 08:53 pm PT

Vietnam's coffee harvest will fall to a four-year low hurt by a dry spell that kicked in again last month – threatening a further downgrade to production hopes.

The U.S. Department of Agriculture bureau in Hanoi forecasts that Vietnam's coffee output, mainly robusta beans, will drop by 7 percent year on year to 27.3 million bags in 2016 - 2017.

The outlook would have been worse were it not for access that many farmers had to irrigation, both from reservoirs and underground sources.

"Despite the dryness, damage to the 2016 - 2017 crop during the key flowering and fruit-setting stage (from January to early March) has been minimal," the bureau said.

Premiums on Vietnamese coffee were stable despite a rise in global prices, but buying has not picked up after recent strong purchases, traders said on Tuesday. Shipments of robusta from Vietnam, the world's top producer of the bitter beans used mainly for making instant coffee, have risen almost every month since the start of the 2015/2016 season in October on higher consumption and in anticipation of dry weather.

Coffee exports from October 2015 to May this year jumped 36 percent from a year earlier to 1.17 million tons, based on government data. Output of Vietnam's upcoming 2016/2017 season is forecast to drop 7 percent from the previous season to 27.3 million 60kg bags "due to adverse weather conditions", a US Department of Agriculture attache in Vietnam said in a report. Coffee exports in the next crop year ending September 2017 are forecast to drop 7.5 percent from 2015/2016 to 26.55 million bags, the report said.

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Coffee beans are dried on the ground in Son La, northwest of Hanoi, Vietnam. Photo by Reuters/ Kham.

On Tuesday, robusta rose to 36,600-36,900 dong ($1.64-$1.65) per kilogram in Dak Lak, the country's largest coffee-growing province, from 35,900-36,200 dong a week ago. In Dak Nong province, Dak Lak's southwestern neighbor, the beans hit 37,000 dong per kilogram, the highest since May 18.

Vietnamese prices closely track robusta futures, which advanced on Monday. ICE September contracts ended up 1.3 percent at $1,689 a ton on Monday, the highest since May 17. "Despite the price gain, sales are still slow as farmers are waiting for higher prices," a private trader in Ho Chi Minh City said. Growers could sell more actively if domestic prices hit 38,000-40,000 dong per kilogram, traders said.

Premiums of Vietnamese robusta grade 2, 5 percent black and broken stood at $30-$40 a ton to ICE September, nearly unchanged in the past two weeks, while bids stood on a par with London prices at a premium of $20/ton. While the rainy season has started in the Central Highlands coffee belt, June rainfall would be 20-40 percent below average, the regional weather station said in a report on Tuesday.

The rainfall will help re-fill underground water and reservoirs for the 2017/2018 crop. "Farmers are feeding fertilizer to coffee trees to help strengthen the cherries," the Ho Chi Minh City-based trader said. Another trader said a gap in buyers' bids and exporters' quotations, plus fresh beans from Indonesia's harvest this month, have made it difficult to strike new deals.