Integration and Development

Robusta coffee prices may increase further as the El Nino weather phenomenon is forecast to spread in the third quarter of 2023, raising concerns about a sharp decline in robusta coffee output in Vietnam and Indonesia, according to Fitch Solutions' BMI research unit.

Robusta coffee prices rose on the London market due to the decline of the US dollar and information about the continued limited supply. In particular, this year's output of the world's third largest robusta producer - Indonesia will decrease by 20% compared to the previous crop, down to 8.4 million bags, due to excessive rain during the flowering stage, preventing pollination, according to the forecast of the Foreign Agricultural Service (FAS) under the US Department of Agriculture (USDA). This is considered the worst harvest in the past 10 years.

Heavy rains and storms are forecast in Indonesia’s coffee growing regions, which could hamper the ongoing harvest. This information continues to support Robusta coffee prices.

Along with the above information, the robusta inventory report as of June 6 continued to decrease by another 1,970 tons, or 2.41% compared to the previous week, down to 79,640 tons.

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

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

Meanwhile, the pressure of the new Arabica coffee crop continues to weigh on New York coffee futures despite reports of unfavorable weather conditions in Brazil, which could accelerate the harvest. Contributing to the decline in Arabica prices is the sharp increase in the Real exchange rate against the USD to a 3-month high (1 USD = 4.9120 R$), which continues to support Brazilians to boost sales of coffee and other agricultural exports.

However, the supply of Arabica coffee is not yet "safe" as the Arabica coffee inventory recorded by ICE - New York continues to decline without any additions in the past few months.

At the end of the trading session on June 6, the price of robusta coffee on the ICE Futures Europe London continued to increase. The price of robusta coffee futures for delivery in July 2023 increased by 7 USD, trading at 2,614 USD/ton. The price of delivery in September increased by 9 USD, trading at 2,583 USD/ton. Trading volume increased.

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

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

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: VND/kg.

(Source: Giacaphe.com)

With current market data, many investors are still leaning towards the Fed pausing interest rate hikes at its next policy meeting in June. Consumer price inflation data for May, due next week, will be the next major US economic data, expected to shed light on the US Central Bank's next course of action.

According to technical analysis, the technical indicators of robusta coffee are showing signs of continued downward momentum. It is expected that in the short term, robusta coffee prices will fluctuate and accumulate within the range of 2575 - 2630. Robusta prices need to rise above 2615 to continue to probe the resistance zone of 2630 - 2650. On the contrary, if the support zone of 2565 - 2570 is lost, robusta coffee prices may establish a downward trend.

For the Arabica market, technical indicators are signaling that the downward momentum is still there. It is expected that in the short term, Arabica prices will fluctuate and accumulate within the range of 180 - 185. Arabica coffee needs to surpass 185 and close above this level to have a chance to recover. Conversely, if the 180 level is lost, a downtrend may be established.

El Nino is a phenomenon of warmer and drier than normal weather in the tropical Central Pacific. Climate scientists predict that this year's El Nino could hit in the second half of 2023. Southeast Asia recently saw a record heatwave in mid-May. “Across Southeast Asia, El Nino events with below-average rainfall and higher temperatures have reduced coffee production,” the BMI report said.

Vietnam, Indonesia and Brazil are the world’s largest producers of robusta coffee, according to the Food and Agriculture Organization. The USDA forecasts robusta coffee production will fall by about 25%.

Source