Figure 1: Evolution closing price floor robusta futures in May (author updated)

Local prices inflate strongly

Raw coffee prices in the Central Highlands rallied sharply just before the ball rolling in the opening match of the World Cup in the Sao Paolo state, Brazil. From last week, the domestic prices slump, decline only 37 million VND / ton. But on Thursday June 12th, market recovery rapidly, unexpectedly increased to 38.5 million / ton.

It must say that when prices are low levels less than 40 million / ton, the market saw quiet. By the time the price is only 37 million / ton, purchase almost paralyzed completely. "Althought not met my expectations but prices up sharply so I can be able to watch the opening match of World Cup 2014 between the home team and then Croatia. But, to 40 million / ton, I will consider sell or not ", a stocking in Duc Trong, Lam Dong province said.

Local prices continue to rise on today - Saturday morning June 14th, reach 39 million / ton, the highest level since the beginning of this month to June, 2014.

Price increases, many beneficiaries

In fact, according to market rumors, this sudden increase benefits for all sides. From early May until June 11h , on May, 2016, prices down constantly, so the export price based on the difference between the list price and delivery at the port of departure (FOB) increased last week, while robusta have type 2.5 % black burst or offered by higher futures prices. Therefore, no one purchase anything. "Many of previous export contract sold at minus over 100 dollars / ton FOB in this curent time coould not buy the goods for delivery, had to anchor," an employee of a export company in Dak Lak province said.

Price increases, althought not enough to offset the loss of over 300 dollars / ton, this is a chance to push up domestic prices enable farmers to sell at a higher price, stretched gap price, one side minimize the losses of the exporters and importers from anxious deliveries.

Local prices surged clearly thanks to thrust the floor, especially the reversal of the London. Indeed, prices in London Liffe robusta Ice May lose the 236 dollars / ton, the price decline continued in the first days of June, if such date is earlier this month at 1,956 dollars / ton, to June 10th every day, futures prices lost another 62 dollars, only U.S. $ 1,894 / ton. But just over three consecutive trading sessions after that, robusta prices closed Friday June 13th closing yesterday at $1998 / ton and is at the highest level since the beginning of the month to date (see chart 1).

Inventories rise strongly

The latest report by the Japan Coffee Association, said the end of the month April-2016, coffee inventories throughout Japan reached 179 037 tons, an increase of 3,544 tons compared with the previous month. Of these, 72 505 tons of arabica imported 22 284 tons of arabica from Brazil and Colombia.

Net inventory report robusta futures floor London standards by the end of June 9th, 2014 additional 8790 tons, reached 59 730 tons. Althought in this period the inventory up 17.7% but still lower 50.7% compared to the same period 12 months ago; at this time reached 121.140 tons (see chart 2).

Standard inventory of floor robusta futures in London rose sharply on the previous time mainly due to source goods from Vietnam. In May, 2014, our country has provided 34.820 tons. On the next month, just from 2^nd to 13^th of June, substandard goods robusta will be supplied by our country about 6,780 tons. This amount is expected to increase steadily over the up coming months by day traders are winning good time to buy low export prices, except when on 100 $ / ton below the list price of the floor.

Market speculation considers that sooner or later, the businesses will store Ice Liffe futures floor with the volume between 250-300 thousand tons. 

Figure 2: Evolution of standard inventory robusta Ice Liffe floor (source: Newedge SG)

The inventory meets the standard of ICE arabica New York by the end of June 13th reach 152.039 tons with the market value equivalent U.S. $ 591.44 million. London robusta inventory value reached 119.30 million U.S. dollars, lost nearly 5 times arabica inventory.

So, on both floors, the "power" coffee mobilize only about 710.74 million dollars to finance inventory real (physical) market value calculated by morning June 14th. If you compare the correlation of forces, which also used the robusta inventory "door" wide.

The dream of "become King"

A bloody business of speculation always wants to make the market follow his direction. Developing the inventories of goods higher and higher in the two floors, this dream will ease come truth.

In the coffee business, in addition to purchase price discontinuity, meaning that two key parties agree with definitive (outright) settlement price for a ton, while the  market also exchanges together with a price calculated by the difference between the listing prices of the floor with FOB terms. If this level is lower than the listed price, the market called reconciling prices, if this level is higher than the listed price, the market called plus price and will be closed after the two sides agreed upon purchase.

When the inventory amount be able to perform standard auction on floor (tenderable) large enough, there are people who easily manipulate market prices to make a profit for themselves and make "all" the floor.

No one is buying high prices, leading to hoarding available on the floor to lower the price to sell. Should the amount of inventory on hand more speculative, possibility floor outright futures price increases greater. The big question that remains what they want to cut words at how much compared to the purchase price.

In the case of futures prices fell, they would use "strategy" price difference. If the purchase price minus 80/100 dollars / ton below the London price, they will sell out the community as $ 100/200/ ton over London prices. The difference between the two so-called value of words after excluding the costs.

Standard price of futures contracts for robusta London Ice types with premium plus 30 dollars / ton, the price listed Class 1, Class 2 at minus 30 dollars / ton and lower types isolated different from $ 30 / ton for the lowest price minus $ 90 / ton compared to the listing price floors term.

Not necessarily the warehousing of goods belongs to the auction floor. They only use the listed price as reference, speculators can actually sell goods to anyone that they find most profitable. The problem here is that when speculators know they′ve caught the largest amount in his hand, then starts operating new dream "becoming King".

Specialist: Nguyễn Quang Bình