Vietnam's coffee production expected to rise 5.6% year-over-year to 27.5 million 60-kg bags in 2013-2014 season; exports expected to strengthen following reduced shipments in 2012/2013, driven partially by stagnating production, low robusta prices: BMI

, December 27, 2013 () – BMI View: We have revised up our coffee production forecasts in Vietnam for the 2012/13 and 2013/14 seasons, due to the fast paced expansion in area cultivated and favourable weather. Coffee exports are likely to strengthen in 2013/14, after stagnating production, low robust a coffee prices and a debt crisis among coffee exporters reduced overseas shipments in 2012/13. Improved supply from Vietnam bolsters our view that international coffee prices will remain relatively low in 2014 and 2015.

We have revised up our coffee production forecasts in Vietnam for the 2012/13 and 2013/14 seasons, as cultivated area has been growing at a faster pace than expected. We now believe output came in at 26.05mn 60kg bags in the 2012/13 season, which ended in September 2013, compared with a previous estimate of 23.45mn bags. In the 2013/14 season, for which the robusta harvest is almost complete, we forecast production to record strong growth of 5.6% year-on-year (y-o-y), reaching 27.5mn bags (compared with a previous estimate of 24.5mn bags). Vietnam's production surplus is likely to swell to 25.5mn bags in 2013/14, compared with the five-year average of 20.0mn bags.

Exports are likely to strengthen in 2013/14, after stagnating production, low robusta prices and a debt crisis among coffee exporters reduced overseas shipments in 2012/13. Exports could reach a record high of 25.1mn bags according to the USDA, up 3.7% y-o-y. Vietnam coffee prices are now trading at a discount compared with front-month NYSE robusta prices (of around US$70/tonne over November-December 2013), which will favour exports in the coming months. Moreover, exports are likely to be strong ahead of the Tet (New Year celebration) at the end of January.

Vietnam Coffee Now At A Discount
Price Ratio - Vietnam Coffee (FOB) / NYSE Robusta Coffee
In spite of Vietnam's government move to limit coffee area expansion in order to support prices and the profitability of the sector, cultivated area has been growing at a fast pace in 2011/12 and 2012/13. Official area harvested reached 644,000 ha that year, compared with the government's recommendation of 500,000 ha, but the actual area may be even higher. Elevated robusta prices during 2011 and 2012 fostered investment, along with the government's rejuvenation plan. Meanwhile, better breeding varieties, fairly favourable weather conditions and improved cultivation knowledge are supporting production growth. In 2013/14, yields are forecast to set a record, at 2.63tonne/ha, compared with 2.47tonne/ha in 2012/13.

Muted Performance Ahead
Second-Month ICE Coffee, USc/lb (Weekly Chart) & RSI (Below)

Improved supply from Vietnam bolsters our view that international coffee prices will remain relatively low in 2014 and 2015. We continue to believe coffee prices will bottom in the next few months, with the USc100/lb level offering strong support. Speculative net positions are close to their lowest levels, limiting further downside for the time being. However, the upside to prices is limited for now, as the global coffee supply is excellent owing to a bumper crop from Brazil and Vietnam and stronger than expected output from Colombia. The weakening of the Brazilian real over the year will also keep coffee prices capped. Our Country Risk team forecasts the Brazilian real to average BRL2.30/US$ in 2014 and BRL2.38/US$ in 2015, compared with BRL2.16/US$ in 2013. Another sharp weakening of the currency would cushion the effect of lower global prices on producer margins, encouraging production.

We see prices averaging higher in the coming years, at USc120/lb in 2014 and USc130/lb in 2015, following weakness in 2013. Global prices below production costs could limit reinvestment in the crop, making trees more vulnerable to disease and weather events. Also, farmers in major producer countries including Brazil, Colombia, Vietnam and Indonesia are likely to consider hoarding in the face of sharply declining profitability.

VIETNAM COFFEE ESTIMATES
  FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
BMI Vietnam Coffee Production* 18,000 16,980 18,500 19,450 26,000 26,050 27,500 27,638
ICO Vietnam Production Estimates* 16,467 18,500 18,200 19,467 24,058 26,300 na na
Vietnam Estimates* 18,000 16,980 18,500 19,415 26,000 26,500 28,500 na
                                 
% Of Global Production 14.5 12.5 14.4 13.8 18.1 16.8 18.1 17.1
% Of Global Exports () 16.0 15.4 18.1 16.4 21.4 20.8 21.5 na
                                 
Vietnam Ending Stocks ()* 1,747 2,307 1,012 800 1,090 1,965 3,815 na
Vietnam Ending Stocks (ICO)* 833 526 640 2,716 3,750 2,750 na na
Coffee Area Harvested ('000 ha) 500 507 514 560 639 644 na na
Coffee Yield (tonnes/ha) 2.11 2.08 2.10 2.18 2.44 2.47 2.63 na
                 
BMI Global Coffee Production** 123.9 136.2 128.5 140.4 143.8 154.9 151.9 161.7
*('000 60kg bags), **(mn 60kg bags). Source: , ICO, FAOSTAT, BMI, (FY14 = 10/2013 to 09/2014)
VIETNAM COFFEE CALENDAR
  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Vietnamese Coffee Calendar RH RH         AH AH   RH RH RH
Note: RH = Robusta harvest, AH = Arabica harvest, Source: BMI,

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.