Vietnamese Coffee Could Benefit as Arabica Prices Leap

WSJ - Isabella Steger

  Soaring coffee prices could mean increased interest in the cheaper robusta beans, grown mainly in

Vietnam.

  Coffee prices have risen 55% this year thanks to concerns over unusually dry weather in Brazil,

the top-grower and exporter of higher quality arabica coffee beans. Arabica coffee, used by coffee

chains like Starbucks, hit a 16-month high last week.

  That has widened the spread between arabica and cheaper robusta beans, a more bitter bean used

mostly in instant coffee, to their highest level since January 2013, according to Rabobank analysts.

  "[W]ith arabica prices spiking, more robusta may be incorporated into blends, lifting the demand

outlook and supporting prices," said the bank in a note.

  But robusta prices have also rallied this year, jumping more than 20% so far in 2014 as Vietnamese

sellers have kept exports tight due to low prices.

Robusta prices gained 9% last week while arabica finished the week up over 20%.

  "There has been so much volatility [in price] between the two in the last few years with spreads

moving up and down," said Kona Haque, a London-based commodities analyst at Macquarie. "Most [coffee

roasters] must have some inbuilt flexibility to switch between the beans a little bit more."

  Tran Duc Tho, chief executive of Duc Nguyen Coffee Co. in Dak Lak province in Vietnam, said the

price of domestic coffee has risen significantly in February, encouraging local farmers to sell part

of their output, though farmers are expecting prices to go up even further.

  But robusta may not be so easy to come by for roasters, said Ms. Haque, as the "remarkable

discipline" shown by Vietnamese farmers means stocks in NYSE Liffe warehouses of robusta have been

"falling like crazy."

  Supply could also come under further pressure speculation mounts over whether the weather pattern

known as El Niño could return this year. El Niño, which is associated with unusually dry

conditions in Asia, could hit Indonesia's robusta crop, said Vanessa Tan, an analyst at Phillip

Futures in Singapore.

Cocoa prices this year are already climbing due to the possibility of El Niño.

Indonesia is the world's third-biggest producer of robusta beans.

  Not all roasters that supply coffee chains will be making the switch, however. Rachel Hamburger,

chief executive of Portofino Coffee Ltd., one of Israel's largest coffee roasters, said she doesn't

think "serious companies will switch to robusta because of the price." If arabica prices continue to

rise, she may consider switching the source of her beans from Colombia to cheaper varieties from

Honduras or Costa Rica, she added.