A dearth of rainfall in Vietnam may provide an extra prop to the recent jump in robusta coffee prices, which hit a fresh 16-month high on Monday, Fortis Bank Nederland said.
The bank, which is already predicting a second successive decline in world robusta production to 53.7m bags, flagged the threat of a deeper decline if dry weather in Vietnam sets in.
"There are reliable indications that rainfall levels in the key provinces of Daklak and Gialai have been 30% lower than usual for the time of year, quite some way into what is usually the rainy season," the bank said in a report.
The shortfall in rain, which is also harming Vietnam's rice production, could affect even those farmers with irrigation.
"This costs them money, and money spent there might be taken from other important inputs, not least fertilisers," the briefing said, also noting fears for robusta output in Indonesia, the second-ranked producer.
In Indonesia, "there has been too much rainfall in some coffee regions, meaning difficulties in gathering the harvest and a higher-than-usual incidence of mouldy beans".
Soaring prices
The potential "concern" about the supplies of robusta beans could give some fundamental, supply-and-demand support to a market whose jump of more than one-quarter this month has been attributed largely to technical factors, including a wave of position covering by investors with short positions.
Robusta coffee for July delivery added 0.6% to end at $1,680 a tonne in London, the highest finish for a near-term contract since late January last year, after hitting $1,697 a tonne earlier.
Vietnam's producers have been sitting on significant stocks, which are being released into the market now that prices have soared.
Indeed, this represented a threat to plan by the Vietnamese government to set up a national stockpile, and increase the country's control over world prices.
"One side effect of the price surge is that it is likely to kill off all hopes for the planned 200,000-tonne state-sponsored buffer stock," Fortis said.
The biggest coffee producers, Brazil and Vietnam, hold only 16% of world inventories between them, with most being held by consuming countries, and notably the European Union, which holds more than half of world stocks.
Rice losses
Fortis's comments follow reports in local press that rice production in the centre of the country was being hit by the lack of rain.
"Our central provinces are facing the loss of a hundred thousand hectares of rice to drought," said Bui Ba Tong, deputy minister of Agriculture and Rural Development, according to Thanh Nien Daily.
Some 60,000 hectares of rice fields have not been planted because of a lack of water, he added, advising farmers to consider other crops.
Vietnam is the world's second-biggest exporter of rice, after Thailand. However, prices of the grain are being kept under pressure by a huge stockpile built up in the Philippines, the world's biggest importer, which is not expected to buy any more rice this year.
Source: Agrimoney.com