Robusta Coffee Climbs to its Highest Price in Eight Months

on Jun 3, 2012

On May 18 2012, Bloomberg reported that robusta coffee climbed to its highest price since October 2011 on account of slowed sales in Vietnam. Since the country is the world’s largest grower of robusta coffee beans, the “thinning” of robusta stockpiles of Vietnamese farmers has an impact on robusta coffee prices.

Bloomberg quotes the report of Volcafe, the coffee unit of commodities trader ED&F Man Holdings Ltd., which notes that sales of beans in Vietnam slowed as farmers’ stockpiles became “thinner”. As a result, on May 18, Vietnamese beans reached 42,000 dong or $2.02, the highest price observed in the past eight months, according to data from the Dak Lak Trade & Tourism Center on Bloomberg.

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Bloomberg points out that robusta coffee price climbed 23 percent this year, with demand increasing particularly in emerging markets. Bloomberg also quotes the prediction of the London-based broker Marex Spectron Group that global coffee demand will increase with approximately 2 percent in 2011-12, with the growth in question expected to come from robusta beans. According to a Bloomberg survey published on 26 March, the robusta coffee price is expected to reach $2,236 a tonne by the end of May 2012. At one point on May 18, the robusta coffee price reached $2,235.!m[](/uploads/story/25/thumbs/robusta_coffee2_inline.png)

As noted at the outset, the rising price is due to falling stockpiles in Vietnam and reduced robusta coffee exports. There are expectations that this will lead to the tapping of beans stockpiles in Europe. On 21 May, Bloomberg reported that as of May 14, robusta coffee inventories holding valid certificates in warehouses monitored by the NYSE Liffe exchange in London were down 0.7 percent from 172,530 metric tonnes two weeks earlier, to 171,380 tonnes.

Generally, robusta is cheaper to produce than the other main coffee variety, arabica, and in consequence, is used in cheaper coffee blends. This in turn is the reason why demand for robusta coffee is increasing in emerging markets, where according to Kona Haque, an analyst at Macquarie Group Ltd., roasters are trying to capture customers, “as well as cater to the lower-end segment at the traditional markets”.

The falling stockpiles of robusta coffee in Europe as well as the reduced exports from Vietnam are also likely to lead to the reducing of the price difference between the two major coffee varieties. Bloomberg quotes a report by Archer Consulting, a Brazil-based consultancy, noting that the arabica coffee commands over robusta beans may fall by about 50 percent. The price difference between arabica and robusta may reach as little as 40 cents a pound, which according to Bloomberg is the lowest price difference observed since March 2009. On May 21, the reported price gap between the two coffee varieties was 79.4 cents a pound in London. The price gap is likely to be reduced both on account of stronger price of robusta and weaker price of arabica, as according to Rodrigo Costa, a coffee market specialist at Archer Consulting, arabica coffee will probably fall to $1.60 a pound with one of the main reasons being the currently weaker Brazilian currency.


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