Coffee glut’s fate hinges on whether growers keep products from market

HOANG THI THOM, a coffee grower in no. 2 producer Vietnam, isn’t keen to sell this year’s harvest.

With prices for the robusta coffee she grows down 18% in 2017, Thom has sold just a tiny fraction of the 6 to 7 metric tons she expects to gather this season. The rest she plans to hold back until after the Tet holidays that celebrate the Lunar New Year in mid-February.

“We would suffer a big loss if we sold coffee beans at this dirt-cheap price,” said Thom, who farms in Dak Lak, Vietnam’s top growing province. “The remainder of my harvest I think I would sell in February, after Tet.”

And Thom is not alone. Eleven thousand miles away in top producer Brazil, grower Joao Luis Carneiro Vianna is holding back half of this year’s harvest, more than the usual 30%. The price of the milder-tasting, moreexpensive arabica beans he produces is down 8% this year.

Such reticence to sell too cheaply by well-capitalized farmers in Brazil and Vietnam could upset speculators’ bets that a glut will weaken the market further. Prospects of a bigger Vietnamese crop this year, a bumper Brazilian harvest in 2018 and a resulting surplus have helped drive down prices.

Export Trading Group sees a surplus of 5.5 million bags in 2018-2019, said Eric Llull, a coffee research manager at the company in Switzerland.

“These are two of the countries where farmers are more sophisticated,” Jose Sette, executive director at the International Coffee Organization, said in an interview in Ho Chi Minh City. “At current prices levels, it’s not so attractive to farmers. There’s no enthusiasm for selling quickly.”

Vietnamese production is expected to rise 5% to 10%, rebounding from last year’s rain-hit harvest, according to Intimex Group, the nation’s largest exporter. In Brazil, traders expect production to expand as arabica trees enter the higher-yielding half of a two-year cycle. Some are even betting on a monster crop, with output at a record.

While increases in both countries could reverse a shortage ETG estimates at 3.1 million bags in the season that started in most countries on Oct. 1, hoarding may temporarily withdraw excess from the market. Some will also be used to replenish carry-over stockpiles that have fallen in both Brazil and Vietnam.

“What the world ignores is that the carry in this year is small, so total availability is the same” in Vietnam, Alex Gruber, a director at RCMA Commodities in the nation, said in an interview in Ho Chi Minh City Monday. “In Brazil, the carry in is very low so the pipeline needs to be built out again.”

Coffee inventories in Brazil will fall 61% to 1.04 million bags by June 2018, according to Santos, Brazil-based exporter Comexim Ltda. In Vietnam, stockpiles fell 69% to 1.18 million bags at the end of last season, the lowest since 2011-2012, the US Department of Agriculture estimates. —