In news coming out of Vietnam, the nation’s coffee producers have apparently sold more than half of their 2013-2014 crop – 55% to be exact – according to Bloomberg and Volcafe. Why the higher percentage than many people expected? As we reported a few weeks ago, trouble with supply in Brazil and South America has forced “a change of markets as retailers and wholesalers look to other countries such as Vietnam to assuage their coffee bean needs.”
As if we were psychics, Vietnam has become a hotbed for coffee and one of the epicenters of discussion. The same Bloomberg report detailed that coffee prices in Vietnam have increased 20%. Volcafe painted the picture of “another active week in Vietnam, with strong physical supplies of farmers and agents selling large volumes at rising local prices.”
It has been a rough go for the bean supply in South America and Asia, according to the article, which noted that arabica beans have nearly doubled in price, while robusta coffee, which Vietnam is known for, has seen its price boom by 26% on a London exchange. Is it only a matter of time before an increase in input cost trickles down to the consumer? Will Starbucks begin charging $10 for dark roast drinks?
The Wall Street Journal also took the opportunity to come aboard the coffee bean supply bandwagon, publishing content highlighting the adverse weather in Vietnam. The Journal quoted one analyst as saying that the country’s coffee supply is critical to the global market: “If robusta output is constrained, that’s going to contribute to more a bullish environment for [the] entire coffee complex.”
It’s not just the weather, however. As easy as it would be to blame Mother Nature for our every woe, it appears that farmers withholding crops is also contributing to the recent surge in bean prices: “Vietnamese growers began withholding stocks late last year due to low prices for physical beans and are still holding out for higher prices,” according to the Journal. What price represents the “sweet spot” for Vietnamese growers to bring beans to market in droves remains to be seen.
Meanwhile, in Indonesia, according to Bloomberg, low supply is due to not being able to get the crop to market fast enough. Volcafe described the issue at hand: “Parts of the fly crop and old crop are still in the interior, with limited volume. The harvest is not expected before beginning of April from the lowland and in May/June from the highland.” Therefore, there doesn’t seem to be any relief in sight due to the harvest’s schedule and the country’s challenging geography.
How bleak is the current coffee shortage? According to a separate Journal article, Brazil accounts for one-third of the world’s coffee. Moreover, “It produces a wide variety of beans, from robusta used in instant coffee to higher-end varieties of arabica coffee that end up in gourmet blends.” A drought and scorching temperatures have caused what rain that falls to evaporate rather speedily, according to the Journal, thus providing no relief.
Apparently, the effects on price might not be short-lived either. A Reuters report claimed that we could still be feeling the sting of the drought in Brazil and elsewhere two years from now: “An arabica deficit in 2014/15, compounded by the unquestionable knock-on impact on the 2015/16 season, given it is an ‘off’ and therefore potential deficit season anyway, would be fuel enough to increase the chances of the 300 cents/lb level.” The price is currently around $2, or 200 cents, so there’s a long way to go before we see $3.
If you’re an addict, buckle in. It looks like it’s going to be a bumpy ride for the next few years.