Market analysis

Bad lucks lurk in the coffee market
(Saigon Times Online) – Despite of wishing and and trying to keep prices from falling, the coffee market has collapsed in the new season. Who export coffee at low "subtracted back" prices, now sit on the fire.

Figure 1: Evolution futures closing price floor in London Sep 2014 (author updated)

Overrall, coffee market has experienced a rather "unlucky" week. Local prices on Saturday morning Sep 13th only 38.5 million VND / ton, down 2 million VND / ton compared with the previous seven days.

 

Closed price of London robusta floor in the last session on Sep 12th closed at $ 1997 / ton, down $ 82 compared to a week ago but lost 115 dollars / ton compared with the peak $ 2112 (see chart 1).

 

During the last increasing period just over, some sellers rush to sell at low minus price 90/100 dollars / tonne FOB. When the price on term floor is going down, it seems to be that contracts will meet dificulties in the beginning of new season. Only half months left to begin a new season 2014/15.

 

Price went against contract

 

Last week, several reports about supply and demand value of coffee appeared in the market, mainly to support upwards. However, many people will be disappointed if they believe too much to base on these reports to make orientation for their business.

 

The head business staff of Volcafe located in Switzerland predicted that on the 2015/16 crop year the world will shortage about 9 million bags of coffee (60 kg x bag), according to them, there will be the first time the world shortage of coffee in the past 9 years and volume will be very big.

 

Besides, statistics of exporting coffee of Indonesia, robusta largest exporter after Vietnam exporting volume fells sharply: in the first 11 months of the crop year from the beginning of season to Aug 2014, Indonesia exported only 211 thousand tons, down over 20% from the 265 thousand tons last year. Coffee exports from Vietnam also greatly reduced in the past three consecutive months, less than 100 thousand tons / month.

 

It seems so clearly that coffee prices on futures on the floor and in the domestic market will increase. But no, the market does not follow expectations of the exporting country.

 

On the New York Ice arabica futures floor from peak at 209.45 cents height / weight Kingdom (cts / lb) on Sep 3rd, the price has dropped five consecutive days, at late Wednesday Sep 10th, arabica floor lost 28.45 cts / lb equivalent to nearly 640 dollars / ton, the lowest level for nine weeks. Similarly, robusta also fall from top 2,112 dollars / ton on day Sep 3rd, lost nearly 124 dollars / tonne compared to closed prices on Thursday Sep 11th.

 

Price reduced due to external factors

 

On financial markets, the dollar surged immediately after the European Central Bank announced to reduce interest rates and can apply stimulus policies, a program such as "quantitative easing" that the United States used to use to rescue the economy last time. The US dollar is not only strong against the euro, but also makes the Brazil and Colombia currency weakened, two biggest countries exporting Arabica coffee. On Sep 11th, the dollar index closed above the 84 points from the beginning of July 2014 only 80 points (see chart 2). 

Figure 2: U.S. dollar index is rising (source: tradingchart.com)

Equitably, not just coffee but commodities of CRB index also lost sharply since the beginning of 2014 until now. On Sep 11th, the index down 281.63 points, down 31.64 points from the peak set on June 23rd 313.27 points. The dollar rose lead to this result. CRB index is a basket of 19 commodities including coffee.

 

Regularly when the dollar rose, commodities get this currency to payment must sell-off a part due to increased value of US dollar.

 

The experience people in the financial markets are concerned that investors will continue to use the U.S. dollar as seat "safe haven" for a long time when geopolitical conflict in Ukraine lead the relationship between the United States and the EU and Russia become stressful, the war against the group calling itself the Islamic State (iS), in particular financial markets are as pant before the Scottish referendum to secede from the United Kingdom.

 

Price reduced from internal factors

 

The exporting countries are extremely worried as many information sources said that Brazilian heavily losses due to drought, but exports still rumbling. In 12 months from Sep 2013 to Aug 2014, Brazil exported over 35 million bags, while recent expectation is only 33 million bags! Many people worry about the country′s output in 2015 will decreased due to "fear" of lacking of rain but the responsible agency for agricultural production of the Brazilian government announced that productivity in next year will up 9.6% compare to this year, ie up 48.83 million bags from 44.57 million bags in this year. For a long time, the number of CONAB forecast is usually the lowest number of forecasts are usually present in the market.

 

For the next season, Commerzbank said that the coffee yeild of Brazil will better than last season because the International Meteorological Organization reported that "weather in coffee-growing regions of this country in the coming months is favorable."

 

Export much, coffee stocks in consuming countries increases. The latest report of the European Coffee Federation (ECF) said that at the end of July 2014, coffee inventories in Europe increased by 5.1% compared to June 2014, reached 11.65 million bags compared to 11.08 million bags.

Expert: Nguyen Quang Binh



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