Why is Vietnam coffee production falling and lifting Robusta prices?
Robusta futures have climbed close to $5,000 per tonne, touching $5,572 at one point, after Vietnam's 2023/24 crop fell short. Arabica futures hit a 13-year high in the same period. Vietnam exported 1.45 million tonnes of coffee, down 12.7 percent year on year, yet revenue rose 30 percent to $5.32 billion on higher average prices.
A drought from March to May withered and damaged coffee trees, cutting output. European traders also bought heavily ahead of the EU Deforestation Regulation, which was due in December before the European Commission proposed a one-year delay. In September, Sumatra's Robusta exports rose 76.36 percent year on year. Coffee production in world markets now hinges on whether Vietnam's next harvest recovers.
Recently, Arabica futures have continued to climb, hitting a 13-year high, with Robusta futures following closely behind, approaching the $5,000 per tonne mark. Behind this rally, Vietnam's coffee production decline has become the market's focal point. Although Vietnam's coffee export revenue hit a record high in the 2023/24 season, drought, typhoons, and the uncertainty brought by the EU Deforestation Regulation are casting a shadow over this globally important Robusta-producing region. This article will review the current state of Vietnam's coffee production and sales, the impact of weather, and the main risks it faces in the future.
Recently, Arabica futures prices have been rising steadily, setting a 13-year historical peak. Driven by this, Robusta coffee futures have also climbed, with the current price reaching $4,981 per tonne, once again approaching the $5,000 mark. The core reason for this rally in Robusta futures is the market's concern over supply prospects triggered by Vietnam's coffee production decline.
A report released by the Vietnam Coffee and Cocoa Association shows that although Vietnam's coffee crop output was low in the 2023/24 season, the country's coffee export revenue set a new historical record. In this season, Vietnam exported a total of 1.45 million bags/tonnes of coffee, with export volume down 12.7% year-on-year, yet revenue grew 30% to reach $5.32 billion.
The rise in export revenue was mainly driven by an increase in the average export price of coffee. In particular, Robusta coffee, Vietnam's main export, has surpassed Arabica in price, reaching over $5,000 per tonne, a historic high.
It is understood that between March and May this year, Vietnam suffered a severe drought, with some coffee trees withering and being damaged, resulting in a considerable decline in production, which pushed up Robusta prices. At the same time, the EU Deforestation Regulation (EUDR) is set to take effect in December, prompting European coffee traders to step up purchasing, further driving up Robusta futures prices, which at one point reached $5,572 per tonne.
It was not until October that the European Commission stated it was necessary to postpone the implementation of the EUDR by one year. In addition, Indonesia reported that Robusta coffee exports from Sumatra in September increased by 76.36% compared with the same period last year. After these announcements, Robusta coffee futures prices began to fall sharply, and the market at the time generally believed that prices would decline further as Vietnam was about to enter its harvest season.
However, during Vietnam's harvest season, typhoons struck one after another, disrupting coffee harvesting operations. At the end of September, Vietnam was hit by the strongest typhoon, Yagi. According to official statistics, Yagi caused 226 deaths and many missing in Vietnam, suspended operations at multiple ports and airports, damaged a large number of houses, factories, and infrastructure, with economic losses estimated at $3.31 billion.
After that, between October and November, Vietnam was successively hit by Typhoons Trami and Yinxing. Although these two typhoons were less destructive than Yagi, they still caused considerable losses. Although these typhoons did not directly destroy coffee-producing areas, they brought heavy rain and strong winds, with rainfall reaching 150 to 250 millimeters, and in some areas even exceeding 400 millimeters, affecting the new season's coffee output and harvesting work. Therefore, large-volume supply is not expected to come onto the market in concentrated fashion until late November or December.
However, Vietnam's coffee industry still faces many challenges at present. The first is the possible La Niña phenomenon in the near future. According to data from the World Meteorological Organization, there is a high probability that La Niña will occur by the end of the year. Once it occurs, it will change Vietnam's rainfall patterns, bringing excessive precipitation and interfering with coffee bean harvesting.
The second is the implementation of the EU's EUDR. The EU is Vietnam's largest coffee export market, but according to the Vietnam Coffee and Cocoa Association, many coffee farmers in Vietnam have relatively scattered planting areas, with most farms only 0.5 hectares or smaller. Proving compliance with the EUDR is extremely difficult, and they also face cost pressures.
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The above content is compiled by CoffeeHunters, a coffee news website.
