Indonesian Coffee Premium Seen Declining on Record Vietnam Crop

Bloomberg - Isis Almeida on 10:59 am November 5, 2013

Buyers of coffee from Indonesia, the third-largest robusta grower, are paying a smaller premium for their beans as exporters sell on concern a record crop in Vietnam will lead to lower prices, according to Volcafe Ltd.

Indonesian beans for shipment in November and December were last week trading at a premium of $160 a metric ton to the price on the NYSE Liffe exchange in London, the Winterthur, Switzerland-based unit of commodities trader ED&F Man Holdings Ltd. said in a report e-mailed on Nov. 1.

That compares with $170 a week earlier, data from the trader showed.

“The drop in Indonesian premiums to below last week’s levels suggests wary exporters want to sell before London futures fall again due to a record crop in Vietnam,” according to Volcafe.

Vietnam, the world’s leading producer of the robusta variety used in instant drinks and espresso, will harvest a record 29 million bags of coffee in the 2013-14 season that started last month, estimates Kona Haque, an analyst at Macquarie Group Ltd.

Futures in London fell 22 percent this year as traders anticipated ample Vietnamese supplies.

A bag of coffee usually weighs 60 kilograms. Indonesia is selling its 2013-14 crop that started there in April. Bean deliveries from farms were about 500 tons to 1,000 tons last week, according to the report.

That’s down from 2,000 tons a week earlier, data from the trader showed.

Local prices were last week at 16,500 rupiah ($1.45) to 17,800 rupiah a kilogram (2.2 pounds) compared with 18,000 to 19,500 rupiah in the previous seven-day period, according to Volcafe.

‘Watchful’ eyes

In Vietnam, the new crop started one-to-two weeks earlier than usual, the trader said.

Farmers are rushing their harvesting, “with watchful eyes on Liffe,” the trader said. Local prices were at 30,200 dong ($1.43) a kilogram on Nov. 1, the lowest since 2010, according to data from the Daklak Trade & Tourism Center on Bloomberg.

The export market “moves slowly, most are short-covering for nearby shipments,” Volcafe wrote.

While differentials are “historically firm,” harvest peak pressure “may oil the wheels a bit in early December,” according to the trader.

Differentials refer to a discount obtained or a premium paid for physical coffee in relation to futures prices. Vietnamese beans for shipment in November and December were last week at a premium of $60 a ton to the futures, according to the report.

That compares with $50 a ton a week earlier.