Coffee prices soar to record high as supply shrinks
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Coffee prices surged 11.3% to a historic high of VND98,100 (US$3.95) per kilogram on Wednesday as inventories dwindle and production is forecast to decline.
The price represented a 110% increase from a year ago. On online coffee business forums, many farmers and traders have expressed surprise at the unprecedented prices, which were around VND70,800 at the beginning of the year.
Prices also rose globally, with the May robusta LRCc2 futures contract rising to an all-time high of $5,999 per ton and the May Arabica KCc1 to $4,186.5. According to Nguyen Hai Nam, chairman of the Vietnam Coffee Cocoa Association, the sharp increase in prices is due to a decline in production and record low inventories.
He said droughts in coffee-growing countries caused by climate change and the El Nino phenomenon have declined global production. His association expects coffee harvests to be 10% lower this year since farmers have shifted to other crops due to low prices in recent years. Shipping disruptions and freight hikes due to the Red Sea tensions also contribute to higher global prices, he added.
The skyrocketing prices have heavily impacted traders. Nguyen Loan, a coffee merchant in Dak Lak Province, said she is cutting back on purchases due to the record prices, pointing out that even large traders are hesitant to stock up on coffee.
“I previously agreed to sell 1,000 tons of coffee to an exporter at VND70,000 per kilogram. At the current prices, I cannot procure enough stock to deliver.”
Phan Minh Thong, chairman of agricultural products exporter Phuc Sinh Group, said coffee merchants are demanding as much as VND99,000 per kilogram.
The company had to make some small purchases and bear the losses to maintain its operations.
“The company has faced huge losses recently. We will incur bigger losses if we buy more.”
According to traders, importers are now buying coffee from India and Brazil instead of Vietnam because of its high prices.
With Brazil’s coffee crop set to harvest in April, prices in the global market might soon cool down.
In the first two months of the year Vietnam exported 438,000 tons of coffee for $1.4 billion, according to data from the General Department of Customs.
They represented increases of 28% and 85% year-on-year.
Questions & Answers
Q.What is causing the sharp increase in coffee prices?
What is causing the sharp increase in coffee prices?
The main causes are a decline in production and record low inventories. This is primarily due to droughts in coffee-growing countries caused by climate change and the El Nino phenomenon, leading to lower global production.
Q.How have Vietnamese coffee farmers contributed to the current supply shortage?
How have Vietnamese coffee farmers contributed to the current supply shortage?
Farmers have shifted to growing other crops in recent years because of previously low coffee prices. This decision is expected to result in coffee harvests being 10% lower this year, reducing overall supply.
Q.Are there other factors, beyond production issues, driving global coffee prices up?
Are there other factors, beyond production issues, driving global coffee prices up?
Yes, shipping disruptions and increased freight costs, particularly due to tensions in the Red Sea, are also contributing to the higher global prices for coffee, adding to the pressure from supply shortages.
Q.What impact are these high prices having on coffee traders and businesses?
What impact are these high prices having on coffee traders and businesses?
Traders are cutting back on purchases due to the high costs, with some large traders hesitant to stock up. Companies are facing significant losses to maintain operations, and importers are seeking coffee from other countries.
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