Behind the Record Price of Coffee

High prices, farmers do not benefit?

In Dak Lak, the coffee capital of Vietnam, many farmers are excited because coffee prices are continuously increasing, but many are also regretful because they sold a long time ago. Mr. Tran Dinh Trong, Director of Eatu Agricultural Service Cooperative (Buon Ma Thuot City, Dak Lak), said: "Just today (January 18), the price stopped and decreased slightly, but a few days ago it continuously increased sharply, almost reaching 73,000 VND/kg, the highest in history. Our Eatu Cooperative mainly buys high-quality coffee beans to process roasted and ground coffee, so the price is 1,000 - 2,000 VND/kg higher than the market price, depending on the quality."

He also said that recently, farmers have had a good harvest and high prices for many agricultural products, so they have had little financial pressure. Therefore, many people are not in a hurry to sell their products and are storing them in the hope that prices will continue to increase. This further limits supply, increases prices and shows no signs of decreasing. Coffee prices have never been so high at this time. Prices fluctuate too much and fluctuate strongly, making it difficult for cooperatives to buy and sell.

Meanwhile, in Krong No District ( Dak Nong ), Mr. Nguyen Dac Dat, Director of Nga Thanh Trading Company Limited, also admitted that coffee prices increased every day, increasing by about 1,000 VND/kg each day. It is worth noting that according to Mr. Dat, although the prices increased, farmers did not actually enjoy the corresponding benefits because in May - June 2023, traders signed contracts and deposited money to buy at a price of 52,000 - 53,000 VND/kg. This is a fairly high price that many coffee growers expected, so they signed to sell. In addition, this year, local coffee productivity decreased by 40 - 50%, only about 1.7 - 1.8 tons/ha, so the profits farmers earned were insignificant. Even with traders, no one thought the price would increase to the current level, so many people "short sold" when they had not yet bought the goods, leading to heavy losses at present.

"Because the price has increased beyond imagination, there have been cases of farmers "breaking the deal", many units have no goods to deliver to partners, so there are losses and bankruptcy. The price has increased too much, so many problems have arisen. Currently, most of the coffee is in the hands of large enterprises. The current price is just a game for these enterprises, the goods in the people are not worth mentioning", Mr. Dat said frankly.

Domestic coffee prices increase sharply following world prices

Because the price increased beyond imagination, there were cases of farmers "breaking the deal", many units did not have goods to deliver to partners, so there were losses and bankruptcy. The price increased too much, so many problems arose. Currently, most of the coffee is in the hands of large enterprises. The current price is just a game for these enterprises, the goods in the people are not worth mentioning.

Mr. Nguyen Dac Dat, Director of Nga Thanh Trading Company Limited

Coffee supply chain disrupted by Red Sea tensions

Mr. Phan Minh Thong, Chairman of the Board of Directors of Phuc Sinh Group - one of the largest coffee exporting enterprises in Vietnam, shared: There are many reasons for the sharp increase in coffee prices, but the main reason is the imbalance between supply and demand. Vietnam has also experienced a shortage of supply for 4 consecutive months this year. This year, the harvest is also about 1 month later than usual. These factors have pushed the price of green coffee beans on the world market to exceed the 3,150 USD/ton mark for the first time. In addition to the imbalance between supply and demand, the tension in the Red Sea has caused shipping costs to skyrocket and the long transportation time is also a factor contributing to the current "price storm".

"The latest update is that shipping rates have continued to nearly double in just the last 10 days. Specifically, at the beginning of this month, goods to the US increased from nearly 2,000 USD to 4,500 - 5,000 USD/container, and to Europe increased sharply from 600 to 4,000 - 7,100 USD/container. Our business normally ships 40 - 50 containers of all kinds of goods every day, but now that we open our eyes, everything has increased, so we don't know how to respond or forecast in this volatile context," Mr. Thong confided.

Also a large enterprise in the Vietnamese coffee industry, Mr. Thai Nhu Hiep, Director of Vinh Hiep Company Limited and Vice President of the Vietnam Coffee and Cocoa Association, shared the same opinion: Coffee prices are high because of high world demand but limited Vietnamese supply due to crop failure. In addition, the actual sales volume of people and traders is low. Although the price is 70,000 VND, the volume of goods traded is only about 50% compared to the supply.

"If we look at the absolute numbers, before the coffee price was only 30,000 - 40,000 VND/kg but now it is 60,000 - 70,000 VND/kg, saying that it is profitable is only partly true. Because this year the coffee yield has decreased quite sharply, the revenue has not increased much. Besides, the production cost, living expenses of workers and other soft costs of society have also increased. In addition, the competitiveness of coffee with other crops of high economic value is not strong, so in terms of real income of coffee growers, it is not high at present. That is also the reason why many people have switched to other crops, especially durian," Mr. Hiep analyzed.

Mr. Hiep also admitted that the Red Sea tension is part of the reason for the current coffee price fever. In addition to the skyrocketing freight rates, delivery times have been extended by 2-3 weeks compared to before, and even more dangerous is the lack of containers and ships. Faced with this situation, roasting importers in the US and EU have sharply reduced their inventories. They are forced to increase the purchase price of long-term goods to maintain supply.

"Only when cargo ships regularly arrive in Europe and the US will prices ease. If tensions in the Red Sea continue, commodity prices will continue to be affected. Because there are contracts but no goods can be exported, Vietnamese export enterprises do not dare to sign new contracts. Now that they have signed contracts, they are worried that the world will fluctuate strongly, which could lead to losses," Mr. Hiep worried.

World coffee prices at historic high, strong trading

According to the update from the Coffee Price website, on January 17, the price of robusta coffee on the London floor for March delivery increased by 183 USD, to 3,170 USD/ton and the price of May delivery increased by 142 USD, to 3,004 USD/ton, these are extremely strong increases. The trading volume is "huge", rarely seen. Similarly, the price of arabica coffee on the New York floor also increased. The March delivery futures increased by 5.25 cents, to 185.25 cents/lb and the May delivery futures increased by 4.7 cents, to 182.05 cents/lb. The trading volume remained very high above the average.

As of January 18 (local time), the price of robusta coffee on the London floor for delivery in March decreased slightly by 14 USD/ton, and the price of May for delivery decreased by 42 USD. The trading volume was very high above the average. Similarly, the price of arabica coffee on the New York floor for delivery in March and May both decreased by 6.05 cents. The trading volume remained very high above the average.

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