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We have been keeping our eye on bullish supply data points for South American Arabica recently. The demand side of the coffee equation is less clear, clouded by the impact of the economic slump on consumers as well as Asian capacity for Cheaper Robusta.

Global Coffee Prices spun into a nose dive in the late 80’s after the collapse of the International Coffee Agreement. As major US household brands like Sara Lee and Kraft shifted rapidly to lower quality Robusta and other cheaper grades, South East Asian growers began to ramp up production dramatically. Nowhere was this more pronounced than in Vietnam, which is among the largest global suppliers after less than a decade of rapidly increasing export levels.

Prices for Vietnamese exporters have fallen dramatically over the past month, with the Vietnam Coffee and Cocoa association reporting average levels of $1,700 USD per metric ton vs. $2,500 in February. Anecdotal reports suggest that there has been a pronounced decrease in buyers from Western Europe and the US combined with a sudden collapse of credit facilities for local brokers and traders. Meanwhile news reports from Indonesia, the second largest Asian producer, suggest that there has been a drop in demand felt there as well (a recent uptick in exports of Robusta is largely due to settlement of forward contracts dating back to early in the season).

The presence of low cost providers like Vietnam and Indonesia complicates the global coffee picture. Although they are primarily producing the less desired Robusta variety they have tremendous capacity and miniscule labor costs.


Andrew Barber
Director