Robusta coffee extends revival. Arabica struggles

Robusta coffee futures extended their revival, as Vietnam came closer to a deal which could stockpile some 20% of the domestic harvest, but arabica prices, which have defied expectations of a drop below 100 cents a pound, could not keep up their recovery.

Vietnam's farm ministry has "signed today for submitting to the government" plans for the state to buy-up robusta coffee in an effort to support the domestic industry Cao Duc Phat, agriculture minister, told the country's National Assembly.

Vietnam is the top producer of robusta coffee, a crop which is a huge support for the country's rural economy besides being a major export earner, with shipments in 2011-12 valued at $3.4bn.

While Mr Phat did not specific the volumes the ministry wishes to see stockpiled, reports have previously talked of some 300,000 tonnes, equivalent to about 20% of the expected 2013-14 harvest currently in progress.

'Coffee is being withheld'

The move added to the upbeat factors which have lifted robusta coffee futures from a three-year low of $1,431 a tonne, for a nearest-but-one contract, reached by London's January contract on November 7.

A 40% slump year on year in Vietnam's coffee exports last month to 61,100 tonnes (1.02m 60-kilogramme bags) is being by some commentators as a sign already of squeezed supplies, rather than soft demand.

Commerzbank analysts on Tuesday termed the decline "an indication that coffee is being withheld in a bid to shore up the price, and that the state is planning to stockpile coffee".

The fall in Vietnam's exports was mirrored by a decline in inventories held in London for delivery against robusta futures, to 48,770 tonnes as of November 11, down from 53,020 tonnes two weeks before.

Storm damage

Robusta prices have also obtained support from reports of the Vietnam's harvest, which has been expected to hit 27m-29m bags, being threatened by heavy rains, which have at least delayed cherry picking and likely reduced quality and quantity too.

"There were concerns that rainfall in Vietnam adversely affected the drying of the crop as well as affecting the trees," Vanessa Tan at Phillip Futures said, if adding that "it remains to be seen how much damage was inflicted on the crop".

Meanwhile, arabica prices have gained support from the strong performance of robusta beans and estimates by Costa Rica coffee researchers that the outbreak of roya fungus in Central America could see the region's output fall a further 12%, after a 20% drop last season.

They also put a recovery in arabica prices to 200 cents a pound on the cards next year, thanks to the impact of the current low prices in undermining investment in plantations.

"Coffee prices are currently finding support from several sides at once – a rare occurrence in recent months," Commerzbank said.

Colombia upgrade

However, an early rebound in arabica prices on Tuesday ran out of steam as an upgrade to the crop in Colombia crop, the world's second biggest producer of the variety, told.

The Colombian coffee producers' federation, Fedecafe, late on Monday raised by 1m bags to 11m bags its forecast for domestic output in 2013.

"Weather has been fine for the harvest, and we see good conditions for flowering," Luis Genaro Munoz, the Fedecafe general manager, said.

Phillip Futures' Ms Tan said: "Fundamentally, supply fundamentals of the arabica coffee market still appears to be bearish," facing "an oversupply".

The broker forecast that the bean's "bearish fundamentals" will push prices below 100 cents a pound.

Arabica futures for March stood 0.5% lower at 108.95 cents a pound in New York at 08:00 local time (13:00 UK time), when London robusta for January was 0.5% higher at $1,573 a tonne.