Here's what Vietnam has to do with the price of your coffee

Vietnam’s vast hoard of coffee beans is shrinking, a phenomenon that will further push rising world prices.

Inventories will have halved by the end of September from a year earlier, according to the median estimate in a Bloomberg survey of traders. Production from Vietnam, the world’s largest supplier of Robusta and the second-largest coffee producer, is also expected to fall in 2022-23.

Dwindling stocks and a poor outlook for the crop come as global coffee consumption recovers from a virus-induced slump. Benchmark robusta prices jumped 17% from a 10-month low in mid-July on concerns about supplies from Brazil to Africa.

Robusta, used by instant coffee makers including Nestle SA or as a blend in espresso, is making a comeback. The variety, which is usually cheaper than Arabica, is in high demand as people look for alternatives to cushion the impact of rising inflation.

Bean stocks in Vietnam eased as shipments rose 17 percent to 1.13 million tonnes in January-July from a year earlier, according to customs data. The increase in exports has been helped by improved supply of containers and ships, but may be difficult to sustain given declining stocks.

“We are worried” about a shortage until early November, said Phan Hung An, chief executive of Quang Minh Coffee Trading JSC in southern Binh Duong province. Domestic producers are likely to hold only about 2 percent of their annual production, compared with about 13 percent a year earlier, he said.

The world coffee market is facing one of the biggest deficits in recent memory after drought and frost reduced Brazilian production. Colombia is struggling to recover from crop-damaging rains, while Honduras, Guatemala and Nicaragua are running out of stocks from the 2021-22 crop. Next season’s crop in Costa Rica is showing signs of stress, and drought has reduced robusta yields in Uganda.

The output of the coffee to fall

Falling stocks in Vietnam pushed domestic prices of robusta in Dak Lak province, which accounts for about a third of the country’s crop, to a record 49,100 dong ($2.10) a kilogram last week.

Carryover stocks are estimated at 200,000 tonnes at the start of the new season on October 1, compared with roughly 400,000 tonnes a year earlier, according to the survey. Production could fall 6% to 1.72 million tonnes in 2022-23, the survey showed. The robusta variety accounts for about 90% of coffee production in Vietnam.

A reduction in the area planted to “profitable” fruit trees and a rise in fertilizer prices are likely to affect production in 2022-23, said Do Ha Nam, chairman of Intimex Group and deputy head of the Vietnam Coffee and Cocoa Association.

Citigroup Inc. cut its forecast for coffee production in Vietnam this year and next as local crop surveys show cherry development has suffered from a lack of fertilizer use this year. “This poses a significant risk to the outlook for the upcoming planting season,” it said in a report earlier this month.

With assistance from Marvin G. Perez

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