Jun 28 / Laleska Moda

Coffee Weekly Report - 2024 06 28

  Back to main blog page
  • The weather continues to be monitored in Vietnam, as it will have a major impact on the 24/25 production.

  • Rainfall has improved since May, benefiting coffee trees and the development of the nesting season, bringing hope to part of the market.

  • However, dry and hot weather in the first four months of 2024 could still penalize 24/25 yields, with could bring production to the lower end.

  • We currently expect production in Vietnam in 24/25 to be 27.2 M bags in our base scenario. However, our models (given the correlation between rainfall, temperatures and yields, indicates we could have a more positive (28.7 M bags) or negative (27 M bags), so we still need to monitor crop development in following months.

  • Its good to note that, in any of this scenarios, stock levels on Vietnam will remain tight, leading to another cycle of thigh global robusta supply.

Weather improves in Vietnam, but will it be enough to change the numbers?

Weather has been a major concern in Vietnam in recent months. Following the 23/24 crop failure and global robusta supply tightening, the market is anxiously awaiting the definition of the Asian country's 24/25 season. In this scenario, the dry and hot weather between January and April has pushed LN prices to historic highs this year.

Since May, however, rainfall levels have improved, benefiting coffee trees and contributing to this year's crop development. This also led to a price correction in May and the last days of June, as part of the market became more hopeful about the Vietnamese 24/25 season.

On the other hand, we cannot ignore the fact that cumulative rainfall up to June is still below the historical average, while temperatures in Vietnam remain high. In this sense, we may still have room for a correction in the 24/25 numbers, so it crucial to monitor closely crop development.


 Central Highlands – Cumulative Precipitation (mm)

Source: Refinitiv

Central Highlands – Average Temperature (°C)

Source: Refinitiv

Our current expectation for the Vietnamese 24/25 season production is 27,2 M bags of coffee, but there are two other possible scenarios depending on future weather.

Considering the cumulative rainfall until May and average temperatures, our models suggest that, in a more optimistic scenario, production in Vietnam could rise to 28.7 M bags in 24/25. On the other hand, considering the minimum variation, production in this next season could end at 27 M bags.

It is worth noting that in the three scenarios (baseline, maximum and, minimum) the country's inventories would remain tight, which could provide some support for prices in the long term. Lower stocks in 23/24 have already been reflected in lower exports from Vietnam in 2024 and have boosted local prices since the beginning of the year. Despite the fall in LN prices in recent days, domestic prices in Vietnam remain at near record levels of around VND 120,000/kg due to low stock levels and producers' reluctance to sell.

So, while domestic prices may see further corrections in the coming months – depending on expectations for the 24/25 season in Vietnam –, levels are likely to remain above those of previous years as supplies of Vietnamese beans will remain tight until the end of the cycle (September/24). This could also give some support in the global market, albeit prices probably will remain below April levels, given the advance of Brazilian harvest in the coming weeks.




Supply and Demand – Vietnam (M bags)

Source: Hedgepoint

Local price - Robusta - Vietnam (VND/kg)

Source: Refinitiv

In Summary

Following the 23/24 crop failure, the market continues to closely monitor the impact of weather on the 24/25 Vietnam crop. While rainfall levels have improved since May, they remain below historical averages. The impact of dry and hot weather from January to April 2024 on the 24/25 crop should also not be ignored.

We currently estimate the 24/25 season close to 23/24 levels, but production could be either slightly lower or higher depending on the weather in the coming weeks, as coffee trees in Vietnam are still in the development stage. However, stocks in the Asian country are currently tight and could remain so in the coming season, contributing to another season of limited robusta supply.


Weekly Report — Coffee

Written by Laleska Moda

laleska.moda@hedgepointglobal.com

Reviewed by Livea Coda
livea.coda@hedgepointglobal.com
www.hedgepointglobal.com

Disclaimer

This document has been prepared by Hedgepoint Global Markets LLC and its affiliates (“HPGM”) solely for informational and instructional purposes, without the purpose of instituting obligations or commitments to third parties, nor is it intended to promote an offer, or solicitation of an offer of sale or purchase relating to any securities, commodities interests or investment products. Hedgepoint Commodities LLC (“HPC”), a wholly owned entity of HPGM, is an Introducing Broker and a registered member of the National Futures Association. The trading of commodities interests such as futures, options, and swaps involves substantial risk of loss and may not be suitable for all investors.  Past performance is not necessarily indicative of future results. Customers should rely on their own independent judgement and outside advisors before entering in any transaction that are introduced by the firm. HPGM and its associates expressly disclaim any use of the information contained herein that directly or indirectly result in damages or damages of any kind. In case of questions not resolved by the first instance of customer contact (client.services@hedgepointglobal.com), please contact our internal ombudsman channel (ombudsman@hedgepointglobal.com) or 0800-878- 8408/ouvidoria@hedgepointglobal.com (only for customers in Brazil)

To access this report, you need to be a subscriber.