Integration and Development

Robusta coffee prices could rise sharply as the El Nino weather phenomenon is forecast to spread in Q3 2023, raising concerns about a sharp decline in robusta coffee production in Vietnam and Indonesia, according to BMI research unit of Fitch Solutions.

World robusta coffee prices rose on the London exchange due to a weakening US dollar and continued supply constraints. Specifically, this year's production in Indonesia, the world's third-largest robusta producer, is expected to fall by as much as 20% compared to the previous season, to 8.4 million bags, due to excessive rain during the flowering period hindering pollination, according to forecasts from the Foreign Agricultural Service (FAS) of the US Department of Agriculture (USDA). This is considered the worst harvest in the past 10 years.

Heavy rains and storm forecasts in Indonesia's coffee-growing regions are disrupting the ongoing harvest. This information continues to support the rise in robusta coffee prices.

In addition to the above information, robusta coffee inventories as of June 6th continued to decrease by another 1,970 tons, or 2.41%, compared to the previous week, to 79,640 tons.

Giá cà phê hôm nay 8/11, (Nguồn: Rodeo West)

Domestic coffee prices increased by 100 VND/kg today (June 6th) in some key purchasing areas. (Source: Rodeo West)

While pressure from the new arabica coffee crop continues to weigh on New York futures prices, despite reports of unfavorable rainy weather in Brazil hindering harvesting progress, the sharp rise in arabica prices against the US dollar to a three-month high (1 USD = 4.9120 R$) is also contributing to the decline in arabica prices. This further supports Brazilians in boosting sales of coffee and other agricultural exports.

However, the supply of arabica coffee is not yet "secure," as arabica coffee inventories recorded by ICE – New York continue to decline without any replenishment in the past few months.

At the close of trading on June 6th, robusta coffee prices on the ICE Futures Europe London exchange continued to rise. The July 2023 robusta futures contract increased by $7, trading at $2,614 per ton. The September contract rose by $9, trading at $2,583 per ton. Trading volume was high.

Arabica coffee prices on the ICE Futures US New York exchange fell slightly. The July 2023 contract rose 0.5 cents, trading at 182.6 cents/lb. Meanwhile, the September 2023 contract increased 0.65 cents, to 179.55 cents/lb. Trading volume increased sharply.

Domestic coffee prices increased by 100 VND/kg today (June 6th) in some key purchasing areas.

Average price	Change
USD/VND exchange rate	23,290	- 10
DAK LAK	61,800	+ 100
LAM DONG	61,300	+ 100
GIA LAI	61,600	+ 100
DAK NONG	61,900	+ 100

Unit of measurement: VND/kg.

(Source: Giacaphe.com)

Given current market data, many investors remain inclined to believe the Fed will pause interest rate hikes at its next policy meeting in June. The May consumer price inflation data, to be released next week, will be the next major US economic data point, eagerly awaited to shed light on the Federal Reserve's next course of action.

According to technical analysis, the technical indicators for robusta coffee are signaling continued downward momentum. In the short term, robusta coffee prices are expected to consolidate within the range of 2575 – 2630. Robusta prices need to rise above 2615 to continue testing the resistance zone of 2630 – 2650. Conversely, if the support zone of 2565 – 2570 is lost, robusta coffee prices could establish a downward trend.

For the arabica market, technical indicators are signaling that downward momentum persists. In the short term, arabica prices are expected to consolidate within the 180-185 range. Arabica coffee needs to break above 185 and close above this level to have a chance of a rebound. Conversely, a loss below 180 could establish a downtrend.

El Niño is a weather phenomenon characterized by unusually hot and dry conditions in the tropical Middle East Pacific. Climate scientists predict that this year's El Niño could occur in the latter half of 2023. Southeast Asia recently experienced record-breaking heat in mid-May. A BMI report stated: "Across Southeast Asia, the El Niño phenomenon, with below-average rainfall and higher temperatures, has reduced coffee yields."

According to the Food and Agriculture Organization, Vietnam, Indonesia, and Brazil are the world's largest producers of robusta coffee. The USDA forecasts robusta coffee production to decline by approximately 25%.

Source