Some scenarios for the coffee market (April 20, 2024)

It can be said that this is the first time in the history of the domestic coffee market to witness a chain of increases spanning half of the crop year. If until the last day of the old crop year (September 30, 2023), the domestic price of raw Robusta coffee was only around 65 million VND/ton, then by April 15, 2024, it was smiling at 110 million VND. . Coffee prices are still increasing and the market ahead is unstable.

Not only the price on the Robusta futures exchange, but from the beginning of April 2024, on the Arabica floor, the price jumped jubilantly like endless festivals, from the Western New Year, extending to the Vietnamese New Year and then unknowingly passing through the Hung King’s Death Anniversary. Dragon Boat Festival… If only counted from New Year’s Day until before the two coffee futures exchanges opened on April 15, 2024, business performance on the London floor measured positive 42.98% and New York positive 18%. .33%. Robusta prices throughout that period went from one record high to another.

It should also be noted that the price of cocoa, a tropical agricultural commodity (soft commodity) closely related to coffee, also enjoys similar blessings. By mid-April, the New York cocoa futures floor sometimes reached a record high of $10,511/ton. The same goes for the gold metal futures price, which crossed the border and ran up to $2,400/ounce until the US dollar value index DXY touched around the highest level since the beginning of November 2023 of 106 points before retreating. a little bit.

Many negative phenomena appear

The joy lasts so long that it makes many import-export traders both excited and worried. Worried that the initial purchase price is too high, where can I get the capital to collect the goods? Worried that the raw material intake is too low, causing the factory to stop operating and workers to be idle; The biggest worry is that the goods have been sold but not enough to be delivered while domestic and foreign prices keep rising like a flood that has never subsided; A batch of goods has just been sold, I don’t know if I can buy it back on the market at the price I sold it for…

That’s not to mention other negative phenomena appearing in the market. Many people take advantage of the fact that there is a bad crop so the gardener does not deliver. They insist on delivery from month to month, causing many difficulties and losses for customers. Many people calculate that the price of coffee will increase so they keep the goods. blocking the flow of goods. In particular, the movement of online coffee business, buying and selling goods on paper is catching up with rising prices, inviting each other to buy in herds…

If there ever comes a time when futures prices break through with continuous sell-offs that push prices down as has been seen many times before, then not only will those holding real goods who bought at high prices lose money, but those holding paper goods will also lose money. also swallowing hatred, resulting in a lot of chaos not only for the market but also for social security.

Let’s try to explain some of the reasons why Robusta coffee prices have increased sharply

Usually depending on the buying or selling position, there are many ways to explain the most reasonable way in the market for you.

For producing countries, the refrain “a poor harvest brings good prices” is familiar.

But I think it is necessary to expand the concept of “crop failure”. Sometimes it also means that even though the goods may be complete, they still rarely appear on the market, warehouses are empty, the amount of goods exchanged in a certain area is very limited in volume…

For this year, many people in the industry think that Vietnam’s coffee output may decrease by 20% but cannot explain why in the first six months of the crop year, Vietnam exported 956,000 tons with a total turnover of 3 billion USD. US dollars, of which robusta accounts for 825,000 tons, equivalent to the same period in 2023 in volume, as stated by Mr. Nguyen Nam Hai, Chairman of the Vietnam Coffee and Cocoa Association (Vicofa) at the Vicofa Executive Committee Conference Expanded on April 11, 2024. According to the World Coffee Organization (ICO), in the first five months of the 2023-2024 crop year, robusta coffee exports worldwide increased by 9.2% to 20.11 million bags (bags = 60 kilograms) compared to with the same period in 2022 being 18.41 million bags(1).

The world coffee supply chain has seen broken parts: from the Covid-19 pandemic, to problems on the key Suez Canal, to the geopolitical crisis in Eastern Europe and especially the Middle East when bombs fell. hit merchant ships crossing the Red Sea, crude oil prices increased and shipping rates increased… Participants in the coffee market all helped each other overcome difficulties and now it must be said that they have overcome the most difficult times. Could it be that these negative impacts affect the coffee supply chain in Vietnam so late and persistently?

Many coffee importers and exporters said that there has never been a strange phenomenon like this: the higher the price, the rarer the coffee on the market.

Knowing that inventories in the region that consumes the most coffee in Vietnam, Europe, are currently decreasing sharply, the urgent need for raw materials for the roasting factory to operate must be available daily to avoid changing the mixing formula. . Therefore, a large German roaster, which has been using a proportion of Vietnamese coffee in its roasts for nearly twenty years, has repeatedly called several major Vietnamese exporters to ask if there is any coffee available. coffee to sell, otherwise they have to find another source. But unfortunately, the export side had to answer that the source of goods was too rare so they could not sign a new contract.

In fact, rumors of crop failure stemmed from the phenomenon when many Brazilian gardeners announced they could not deliver goods to forward contracts due to prices jumping too fast and too high in the 2022-2023 crop year, so many Foreign processing enterprises have relied more on Vietnamese goods, which has helped raw material prices here increase sharply since the first months of 2023.

From then on, the market began to feel the “domino” effect from Brazil to Vietnam. Prices jumped so much that many exporters who had closed their purchases couldn’t keep up and… had to beg for delivery, even break the signed contract. The crisis in the domestic coffee supply chain continues until today.

So the buyer asked for help and was “dislocated”, so he had to find an emergency place, the London coffee futures exchange. They have to buy back futures contracts, sometimes 3 or 4 times the amount to prevent losses. And so, prices continued to increase so sharply on the London floor that many people ignored the underlying cause, saying that the world had a “severe” coffee crop loss even though Brazilian robusta coffee output was approximately equal to Vietnam’s.

The phenomenon of sharp increases in prices in the domestic market occurred at a time when domestic exporters lacked capital, banks tightened credit, high interest rates faced additional input prices that doubled and now nearly tripled, causing coffee to The absence of real goods in the market flow is inevitable. In Brazil, the central bank acted promptly by providing credit of over 600 billion Reais (Brazilian currency/BRL) to increase purchasing capital for businesses to maintain their reputation and coffee brand. .

Some scenarios for the future market

Beautiful scenarios have been happening. Now let’s look at a negative but not impossible scenario.

Prices increase or decrease, market participants often look at the business position of financial investment funds and capital management. However, since this year, these funds have been almost motionless, the amount of short-buying contracts on the Robusta futures exchange has always fluctuated in the region of 40,000-45,000 contracts (contract = 10 tons). Of course, they are waiting for a favorable opportunity to make money by luring good bait into the game. Seeing that the coffee market is delicious, many paper goods traders in some producing countries are eager to buy to make a profit right away or to “invest” for the long term. This makes futures prices even stronger.

But who knows what risks are waiting right in front of your eyes. Suppose large investment funds decide to liquidate short contracts, they sell off sharply, bringing futures prices to low levels. It was then that the coffee market panicked: buyers of high-priced paper goods lost money, people holding unsold real goods sought to sell goods and sell them at any price, pushing down the price of real goods, while exporters did not. If there are output contracts that cannot be supported due to few new supply contracts… then it is too late because the export market share has already more or less fallen into the hands of competing countries. At that time, the biggest loss was not only the loss of a lot of money, but those who tried to preserve the Vietnamese coffee brand began to understand.

Your post Nguyen Quang Binh (Saigon Economic Newspaper)