Record high coffee prices expected to continue into early 2024
Coffee prices on global markets are soaring to record highs. Robusta coffee prices on the London Stock Exchange are nearing the $3,000 per ton mark, while prices in Vietnam have reached nearly 70,000 Vietnamese dong (VND) per kilogram. This is unprecedented in the history of the Vietnamese coffee industry.
Robusta coffee prices on the ICE Europe – London exchange for March delivery rose $136 to $2,960 per ton on February 19, 2023, and March delivery prices also rose $136 to $2,932 per ton. These are record highs from before to now.
Similarly, prices for Arabica coffee on the ICE US – New York exchange are trending higher. March delivery prices rose another 11.30 cents to 202.40 cents/lb, and May delivery prices rose another 11.55 cents to 199.60 cents/lb, with both being extremely strong. Trading volume remained very high above average.
Coffee prices to continue rising in early 2024
Analysts say that the sudden surge in coffee futures prices on both exchanges was caused by the news that the international shipping route through the Suez Canal was attacked by Houthi terrorists, causing the Europe-Asia shipping line to divert around the Cape of Good Hope in South Africa with higher transportation costs amid rising oil prices amid the possibility of OPEC+ cutting production.
Markets are concerned about the decline in Robusta coffee production in Southeast Asia, with Vietnam down 3.8 million bags and Indonesia down 2.15 million bags, while dry weather conditions in Brazil have not really improved, although demand remains stable and ICE inventory data at a 24-year low continues to support.
In the meantime, the DXY index turned down as there were signs that the US Federal Reserve would not raise interest rates, making commodities denominated in the "greenback" more expensive due to the depreciation of emerging market currencies, contributing to pushing up commodity prices. The Brazilian market also rose across the board when the Brazilian real rose 0.83%, raising the exchange rate to 1 USD = 4.8631 R$, which prevented Brazilians from selling coffee for export.
At the domestic market, the price of coffee beans in the Central Highlands provinces on December 19, 2023 alone increased by 2,500-2,700 VND/kg, ranging from 68,900-69,600 VND/kg. Experts forecast that from now until mid-next year, if major economies around the world continue to cut interest rates, Vietnam's coffee exports will continue to benefit, as this is the time when roasters around the world buy stocks, so coffee prices will continue to rise high in the early months of 2024.
Analysis of coffee supply and demand in the world shows that coffee prices will continue to rise.
Information about dry weather conditions in the main coffee-growing areas in southern Brazil, which threatens the upcoming crop, combined with speculation that the Fed may not raise USD interest rates any further and could start a cycle of rate cuts in early next year, has prompted funds and speculators to return to the markets and buy heavily, pushing futures prices up consecutively.
The Brazilian Supply and Forecast Company (Conab) recently released its fourth coffee crop survey, which adjusted Brazil's Arabica production up by 0.7 million bags, causing the New York rally to stall and the anxiety about ICO's global deficit forecast of 1 million bags to ease.
According to a report by the Foreign Agricultural Service (FAS) of the United States Department of Agriculture (USDA), the supply of Robusta coffee for the global consumption market from the major producing countries in Southeast Asia is likely to decrease, which has prompted funds and speculators to return to the futures market to increase purchases, however, the volume has not been large due to caution from the issue of monetary interest rates.
In Vietnam, FAS estimates that production in the 2023/2024 crop year will fall to 27.8 million bags from an estimate of 31.3 million bags in May 2023 due to unfavorable weather conditions. The estimated carryover stocks have fallen to only 390,000 bags instead of 2.76 million bags as previously estimated.
FAS also forecasts that Indonesia's total coffee production in the 2023/2024 crop year will fall 18.14% from the previous 2022/2023 coffee crop year, down to 9.7 million bags. It is expected that Indonesia will prioritize raw coffee for the domestic industry, only allocating about 5 million bags of coffee beans for export, down by 35.02% from the previous crop.
This is a significant setback for the global coffee market. Vietnam and Indonesia are the two largest producers of Robusta coffee, accounting for about 60% of global production. The decline in production from these two countries is likely to lead to a shortage of Robusta coffee on the global market, which could drive prices even higher.
Vietnam's coffee exports are expected to reach $4.5-5 billion in 2024
In the 2022/2023 coffee crop year (October 2022 to September 2023), Vietnam's coffee industry set a record export value of more than $4 billion, despite a decline in production.
According to the General Department of Customs, Vietnam's coffee exports in November 2023 reached 80,000 tons, worth $252 million, up 83.0% in volume and 59.9% in value from October 2023. Compared to November 2022, exports fell 37.9% in volume and 17.5% in value.
In the first 11 months of 2023, Vietnam's coffee exports are estimated to have reached approximately 1.38 million tons, worth $3.54 billion, down 12.9% in volume and 2.5% in value from the same period last year. The average export price of coffee from Vietnam in the first 11 months is estimated to be $2,570 per ton, up 11.9% from the same period last year.
While exports of Robusta and Arabica coffee have declined from the same period last year, exports of Excelsa and processed coffee have increased.
With the growth of coffee exports in November 2023 and the forecast that Robusta coffee prices will continue to remain high, Vietnam's coffee exports in 2024 are likely to reach $4.5-5 billion, exceeding the target of $3.6 billion set by the Ministry of Agriculture and Rural Development.
According to the Vietnam Coffee and Cocoa Association, the coffee area in Vietnam is shrinking in many key growing areas. In the 2023/2024 crop year, Vietnam's coffee production is expected to decrease to around 1.6-1.7 million tons, compared to 1.78 million tons in the 2022/2023 crop year. Currently, Vietnam is ranked 6th in the world in terms of coffee area, but is the second largest coffee exporting country in the world.
In December 2023, Robusta coffee prices in the domestic market rose sharply compared to the end of November 2023. On December 17, the domestic market recorded an increase of 6,200-7,000 VND/kg compared to December 1. By December 20, the coffee purchase price reached nearly 70,000 VND/kg. This is unprecedented in the history of the Vietnamese coffee industry.
Coffee prices in Vietnam remain high at the beginning of the harvest due to strong demand from export companies and foreign-invested enterprises. In view of this situation, many forecasts suggest that the supply shortage will continue from now until the end of April 2024 (when Indonesia enters the new crop), causing coffee prices in Vietnam to rise at least until April 2024.
It is worth noting that only Vietnam is currently harvesting Robusta coffee, while coffee from other countries such as Indonesia or Brazil will not be harvested until April to July 2024. In addition, due to the impact of climate change and farmers switching to other crops, Vietnam's coffee supply, the world's largest Robusta producer, has also declined in recent years, further limiting supply and contributing to higher prices.
Many leading experts predict that coffee export prices in Vietnam are expected to remain high, or even reach a new peak in 2024 due to concerns about global coffee supply. Exports are forecast to generate $5 billion in 2024.
