(Bloomberg) — Any hopes that a flood of coffee exports from Asia’s major growers would take the heat out of a blistering rally that’s pushed robusta prices to the highest since the 1970s are fading fast.
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Vietnam produces around a third of the worldwide supply of the variety that’s mostly used for instant drinks and espresso blends, but a drought followed by weeks of heavy rain has hit the nation’s coffee belt hard just before harvesting that starts in October.
The climatic extremes, and a shrinkage in the amount of land devoted to coffee growing, will cut the country’s harvest by about 10% to 15% this season, said Trinh Duc Minh, chairman of the Buon Ma Thuot Coffee Association in the biggest coffee-growing province of Dak Lak.
“The drought has caused the trees to produce less beans, and the beans are also smaller,” he said. “The rains will hinder farmers from picking the beans and drying their coffee, while also causing transport difficulties.”
More than 95% of Vietnam’s coffee output next season will be robusta, according to the US Department of Agriculture.
The growing popularity of instant and grab-and-go coffee drinks and weather-hit supply has spurred a more than doubling of robusta prices over the past year. It’s now almost as expensive as the premium arabica variety, which has also rallied sharply. Volcafe Ltd., a major coffee trader, is forecasting a hefty global robusta deficit in the 2024/25 season that starts in October, the fourth annual shortfall in a row.
In Indonesia — which supplies around a 10th of the world’s robusta — it’s rising domestic demand rather than problems with the weather that look set to limit relief to global markets.
Output may reach 10 million 60-kilogram bags this year, which would be 14% higher than 2023, said Moelyono Soesilo, the head of downstream coffee at the Association of Indonesian Coffee Exporters and Industries. However, exports are likely to remain steady at about 250,000 tons due to a surge in local consumption, he said.
The amount of acreage in Vietnam used to grow coffee has been declining due to farmers switching to alternative crops like durian and avocados over the last few years. Reduced groundwater and shade also pose long-term challenges as many Vietnamese farmers rely on wells for irrigation and forest cover helps slow evaporation, according to a USDA report.
The USDA in June forecast just a 1% drop in Vietnamese robusta production in 2024/25 to 27.85 million 60-kilogram bags. However, that’s about 9% lower than the 2021/22 season, illustrating the longer-term decline in output that’s coinciding with surging global demand.
Robusta is likely to keep gaining market share because it’s more tolerant to heat and disease than arabica — although both beans still face significant climate risks. That all adds up to bad news for the world’s coffee drinkers, who look set to face elevated prices for some time yet.
Vietnam’s coffee belt was already experiencing wet weather in August, but the downpours that happened in the aftermath of Typhoon Yagi, which made landfall in the north of the country on Sept. 7, drenched coffee plantations even further.
The continued rains mean Vietnamese shipments that usually start in early November will be delayed until early December or even later, said Daryl Kryst, assistant vice president, commodity execution and sales at StoneX, a commodities brokerage. “We do expect (robusta) prices to ease off, but that may not be seen until the start of next year.”
–With assistance from Sanjit Das.
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