Coffee farmers in Vietnam hoarding most robusta since 2010

[HANOI] Farmers in Vietnam are holding the biggest unsold coffee inventory in at least five years months before they're forecast to harvest a bumper crop.

Growers in the top supplier of robusta used by Nestle SA held 35 per cent of this year's 1.56 million metric ton output at the end of May, the most since at least 2010, according to the median of eight trader estimates compiled by Bloomberg. While El Nino is seen as a threat to the next harvest starting October, production for now is still forecast to reach 1.72 million tons, matching the record in 2013-2014, the survey showed.

Swelling stockpiles may keep pressure on futures that have dropped 10 percent in London this year and reduce the impact of output losses from the El Nino weather event, which the Australian government expects to intensify. Farmers preferred to stockpile beans rather than sell them as local prices fell to a 16-month low, cutting shipments to the lowest since 2010.

"There's risk of a big carryover into the next crop because farmers will keep holding back sales if prices stay as low as this," Phan Hung Anh, deputy director of Dak Lak-based Anh Minh Co, said June 2. Sales won't rise much unless prices recover to about 40,000 dong (US$1.83) a kilogramME, Mr Anh said.

Beans traded at 37,100 dong on Monday after dropping to 34,000 dong on May 27, according to data from the Trade & Tourism Center in Dak Lak province, which supplies 30 percent of the harvest. Robusta on ICE Futures Europe slumped to an 18- month low last month.

Unsold reserves were 550,000 tons at the end of May compared with 320,000 tons a year earlier, the survey showed. Growers held 48 per cent of the crop at the end of April, Nedcoffee BV said on May 18. That compares with 42 per cent in a Bloomberg survey.

While exports from Vietnam slumped 40 per cent in the five months through May, according to the Statistics Office, sales have soared from Brazil, the world's second-biggest grower of robusta. The nation shipped a record 7.1 million bags (426,000 tons) in the 12 months through April, from 4.1 million bags a year earlier, according to Rabobank International.

"The timid selling from Vietnamese farmers since the start of the crop in October is in sharp contrast with the wall of Conillons that came from Brazil," Rabobank analysts including Carlos Mera wrote in a report e-mailed May 21, referring to robusta beans from Brazil.

Vietnamese exports will be significantly lower for the rest of the marketing year if prices do not exceed 40,000 dong, the US Foreign Agricultural Service said last month. Assuming normal weather and rebounding yields, the 2015-2016 harvest may reach 28.67 million bags (1.72 million tons), the unit of the Department of Agriculture said in a report.

Lower lending rates on bank loans and income from other crops such as pepper and durian fruit have helped farmers hold back beans, according to Sept. 2nd Import-Export Co, Vietnam's second-biggest exporter, known as Simexco.

Some growers may also be betting on a smaller harvest next year because of El Nino that can parch parts of Asia. Vietnam's coffee is at most risk because of inconsistent rainfall amid an intensifying El Nino, Commodity Weather Group said last month.

All regions may get below-average rainfall through August, Vietnam News Agency reported June 2, citing the National Center for Hydro-Meteorological Forecasting. Average temperatures in summer will be 0.5 degree to 1 degree Celsius higher than normal and water levels in rivers could drop to 60 percent below average in the Central Highlands, it said.

"Rains have been irregular with hot temperatures during the day," said Alexander Gruber, trading manager at Tong Teik Pte, a company owned by RCMA Commodities Asia Pte. An "irregular weather pattern may create troubles for the formation of the cherries, similar to what we experienced last year, where periods of strong rain were followed by very dry and hot periods," he said by e-mail June 1.

While year-to-date precipitation in Dak Lak is 30 per cent less than normal, rainfall last month was only 5 per cent below the average, government data show. If the weather improves this month, prices will be under further pressure and the risk of a big carryover will be even higher, Mr Anh of Anh Minh Co said.

BLOOMBERG