Figure 1: The Oscillation of Arabica Ice price floor New York (Source: tradingcharts.com)

Financial investor swap capital

In the past month- July 2014, the world was not peaceful if you look back the economic fluctuations and the politic all over the world. MH17 plane of Malaysian crashed in Ukraine airspace, killing 298 people an excuse that the United States and EU purnished Russia aggressively on many sides, from the economic to power and military. Staying in the instablility sistuation, the Federal Reserve (Fed) announced to reduce stimulus package to $ 25 billion / month and then will cut completly in the next few months. Previously, the Fed steadily pump money into the market every month, from 85 billion / month and then reduced 10 billion each month, in recent time only 35 billion dollars / month drive the financial markets more instability.

Commodity prices jumped messy. In particular, the sensitive commodities such as gold, crude oil, cocoa, coffee ... seemed to be used to interchange by financial speculators to cycle flows in the market: For example the gold price went up and the coffee prices went down. But in the last days of July, 2014, by contrast, coffee prices up sharply and the price of gold to transfer step, as by the end of trading session on 31-7, the futures price of gold in the floor urban America is in 1281.3 dollars / ounce, down from last peak is 1,346 dollars / ounce on July 10^th.

If the floor price of arabica coffee futures in New York on July 11^th traded only below 160 cents / pound (cts / lb), it is closed at 195.05 31-7 cts / lb, or increase equivalent to over 770 dollars / ton (see chart 1).

Big chance for coffee commodity

Remember when the market was shocked by the news about the Brazil coffee suffer drought heavily, the price of arabica traded in New York has increased strongly to its highest level in two years in April 2014. After that, prices floor have softened and decreased sharply to the bottom in early of July 2014.

Currently, the world coffee market has suffer adverse consequences caused by the impact of drought to Brazil’s output; it has made many people surprise. After harvest time, many cooperative in this countries confirmed that the coffee beans are poor quality, floaters and more errors. Small size are often resulted in low productivity and lost output.

Calculate output, this is not the real number but depends on the view point of individual. Indeed, once the market revolves around 3 main numbers when talking about coffee production in Brazil, farmers are estimated 40 million bags (1 bag = 60 kg), the specialized agencies estimated 45 million bags and the buyers to 50 million bags. Last week, many units previously estimated the output about 50 million now reduced to 45 million or even 40 million bags. Study of Citigroup - The Banking Group (USA), for example, previously estimated at 45 million bags, now turned to accept the smaller numbers. An expert at the International Coffee Organization this week estimated that the next season the world will lack about 8-10 million bags of coffee.

Meanwhile, the Vietnam Coffee and Cacao Association (Vicofa) said that our country′s coffee production in crop year 2014/15 starting from up coming Oct 1^st estimated at 23 million bags, down 1.3% compared with current crop about 23.3 million bags. Officials gave estimate to explain more about the reason of coffee crop yield reduction due to drought in early of this year and heavy rains in recent months. Currently, about 15% of the coffee fruit is dropped, so the yeild is not high. In the 2013/14 crop year will end on Sep 30^th 2014 coffee production in our country is estimated to reach 1.4 million tonnes or about 23.3 million bags.

This forecast Vicofa is considered the most realistic ever, but much lower than other forecasts, as forecast by USDA′s 29.2 million bags, Reuters’ poll at 27.5 million bags.

Anyway, the news on demand-supply raises concerns and help New York arabica floor price boom continuously in the past July. Coffee prices on the last day of month became lively strangely.

Exports decrease, poor yields, prices increase

Statistics from the Ministry of Agriculture and Rural Development estimated that in July 2014 our country exported about 77,000 tons of coffee, down 28.9% compared to June and 15.1% compared to the same period of last year. However, coffee exports in the first seven months of this year reached 1.13 million tons, up 26.9% compared to the same period in 2013.

Inventory data Robusta standards certificated by the London Ice Liffe floor can be put on auction in July 2014 reached 14 790 tons, in which our country has 11,570 tons. According to experts, because goods go directly to the roasted oven reduced, they estimated that the volume brought to this floor to get the bidding certification standards will continue rising in the up coming months.

Inventory data in the warehouse coffee buyers around the Ho Chi Minh City port in last month – July 2014 was estimated at 280,000 tons, a reliable source said.

Futures prices rose round period whether it is out of intention to increase the value of inventory?

  Figure 2: Evolution closing price floor Ice Liffe robusta july 2014 (author updates)

Price boomed last day of month

If it did not explode on the floor Ice Liffe robusta futures in London last day of month July 31^st, the market in last month was peaceful. Domestic coffee prices rose 40.5 million VND/ ton quickly in the early of month, then became very quietly, with the only remaining 38.5 million / ton. Even on the July 30^th, domestic prices had not over 40 million / ton, to July 31^th nearly hit 41 million VND / ton.

Trading session yesterday, last week but also the first day of the Aug 2014, the two floors continued to rise, still boomed on the arabica floor. However, finally the two floor surendrered after the prices were pushed up 207.40 cts / lb.

Closing weeken session yesterday August 1^st, London robusta futures prices have exceeded the the highest peak the July 2014 set up at July 31^st at 2,139 dollars / ton. Unfortunately, the price was down at the end of session to close floor at .2097 dollars / ton (see chart above).

Domestic coffee prices yesterday afternoon Friday August 1^st sometimes the dealer has purchased 42 million VND, but the future price dropped unexpectly at the end of session, this morning, Saturday August 2^nd stood at 40.8 million VND / ton.

Market has many exciting  and surprising ahead.

Expert: Nguyen Quang Binh