VIETNAM 31
Prices rise but farmers still face uncertainty
Robusta prices were fetching the equiv- alent of US$2,349/tonne, a record in local currency terms. ABN AMRO said many of the buying
A
agents – the ‘middlemen’ – in Vietnam were in no hurry to sell, following a rise in Robusta prices of around 90 per cent since the same time last year.
Adverse effect
of inflation Moreover, with inflation now running at an annualised 13.89 per cent in Vietnam, coffee in the hand represents a good anti-inflation hedge. At the time of writing about 250,000 tonnes of the har- vested crop remained inside the country. "Nevertheless," said ABN AMRO, "the
structure in the market, with a weaken- ing of the July/September spread, sug- gests that the market is assuming that Vietnam’s coffee will eventually end up in Europe, and the trade has been able to buy Robusta stocks at or below ten- derable parity in Vietnam." "The recent explosion in the May/July
spread has mobilised the trade to ship much of the stock to Europe with the intention of delivering, which increased the build in certified stocks, eventually pressuring long holders," said ABN AMRO.
Rainfall interrupted
harvest Earlier, it reported that its estimate for Vietnam’s (now ended) coffee harvest for the 2010-2011 season is that the country produced 20 million bags of Robusta, 1 million less than its previous estimate, due mainly to heavy rainfall towards the end of last year, which inter- rupted harvesting. The country also pro- duced around 400,000 bags of Arabica. Exports in January (according to
BN AMRO’s Agricommodities Monthly reported that in the sec- ond week of March Vietnamese
Vietnamese coffee farmers face uncertainty over their crop despite higher prices
With Robusta prices at very much higher levels than in recent years Vietnamese
buying agents have been holding on to coffee in
anticipation of higher profits
Inflation and interest rates
cause concern However, while prices are high, the background macroeconomic uncertainties facing Vietnamese coffee farmers remain concern- ing. With high inflation and high interest rates farmers are facing rising costs, not just for food but also fuel, as well as the prospect of tighter credit. In this context, holding on to physical coffee
Vietnam’s General Office of Statistics (GSO)) were down slightly, year-on-year, at 2.33 million bags; the GSO revised higher its estimate for December’s exports, to 2.73 million bags, 13.1 per cent above exports for December 2009. The slowing of exports at a time when
they might have been expected to pick up was largely a result of high prices and Vietnamese farmers and exporters deciding to hold onto coffee. In fact, by the end of January local prices for cof- fee in Vietnam were at their highest in almost three years, tracking the rise in international prices.
Exports slow
"Predictably, flows out of Vietnam slowed," said ABN AMRO, "partly because of the Tet holiday but also because Vietnamese farmers have been very comfortably reim- bursed for their troubles this season, and they have been holding back coffee in the hopes/expectations of higher prices yet." "Vietnamese producers saw how well
prices did last year – up more than 50 per cent in local terms, and more than 10 per cent so far this year," said ABN AMRI, not- ing that they had set their sights on obtaining equally remunerative levels again.
and selling only when necessary seemed like a good policy in the meantime. ABN AMRO said banks have become
much more cautious about lending, and many coffee trading firms made losses in the first quarter of 2010 which they were keen to avoid in the same quarter this year. The problem last year was that they signed export contracts late the previous year for forward shipments in 2009/2010, only to see the price collapse to a low of around $1,200/tone in February last year.
Credit concerns
Last year’s credit growth rate of 38 per cent alarmed Vietnamese banks, and the central bank has set a cap on credit growth of 25 per cent. Although coffee farmers and exporters are getting more local currency for their coffee exports, thanks to the Dong’s devaluations, this will not necessari- ly be a net benefit – inflation may more than erode any related exchange rate gains, ABN AMRO explained. As a reflection of the current uncertain-
ty, the striking of forward prices had become much more difficult, ABN AMRO concluded, which, at times in the last few months, has led to fears that contracts might be delayed or that there could be defaults. C&CI
May 2011 C&CI
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