Expectations of poor robusta coffee crops could spur price rally

By Reuters   June 24, 2016 | 08:59 am GMT+7
Expectations of poor robusta coffee crops could spur price rally
Coffee beans are displayed at an exhibition in Hanoi December 10, 2015. Photo by REUTERS/KHAM

Expectations of poor robusta coffee crops next season in major producers such as Brazil, Vietnam, Indonesia and India could trigger a price rally.

"Weather is not ideal in all of these countries," a senior European coffee trader said.

Output of Brazilian robusta, or conillon, is forecast to be down this year due to prolonged dry weather in key growing areas such as Espirito Santo, and trade sources are now voicing concerns about prospects for next year's crop.

In top robusta grower Vietnam, dry weather in April and May and below average rainfall in June, augured for a drop in output in the next harvest due to start around October/November.

A late start to harvesting in Indonesia, the No. 3 robusta producer behind Brazil, is likely to erode production, while dry weather in India has scaled back expectations for robusta output there.

Monsoon rains in India were 7 percent below average in the week ended June 22, the weather office said on Thursday, narrowing the deficit since the season started on June 8.

"All the elements are there to indicate that next year’s production of robusta will be less than this year," the trader said.

Traders said robusta futures on ICE could outperform arabica in coming months due primarily to the tight robusta supply outlook next season, but also because of expectations that growth in demand for robusta will outpace arabica.

"In emerging economies and producer countries demand for robusta is growing strongly, while arabica demand growth is stagnant," said Andrea Thompson, analyst with CoffeeNetwork.

Cash premiums for grade 2 Vietnamese robusta were little changed this week at $40 over ICE September futures, indicating continuing firm physical demand.

Traders said robusta on ICE had potential to climb to $1,800 per tonne, equivalent to 40,000 dong, which would probably trigger Vietnamese producer selling and be seen as key resistance.

September robusta coffee futures were up $1 or 0.06 percent at $1,709 per tonne on Thursday, not far off a 10-month high of $1,748 touched on June 9 when worries over possible frost damage to arabica spilled over into robusta futures.

Robusta futures are capped by plentiful prompt supplies of Vietnamese coffee due to a big carryover into the latest harvest, as well as ample stocks in ICE-approved warehouses, traders said.

 
 
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