CEO Morning Brief

World Heads for Fourth Year of Shortages for Instant Coffee Beans

Publish date: Fri, 24 May 2024, 10:41 AM
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TheEdge CEO Morning Brief

(May 23): Volcafe Ltd, one of the world’s top coffee traders, sees an “unprecedented” fourth year of deficits for robusta beans used in instant coffee, as top producer Vietnam continues to face dry weather.

The crop potential for Vietnam in the 2024/25 season is seen at 24 million bags, the lowest in 13 years, according to a Volcafe report seen by Bloomberg. Poor rainfall in Vietnam has caused “irreversible damage” to coffee blossoms, while lower fertiliser use and the expansion of durian trees at the expense of coffee acreage have also weighed on production.

Volcafe forecasts a global robusta deficit of 4.6 million bags in 2024/25, smaller than the nine-million-bag deficit seen in the previous season. Each bag of coffee is 60kg. Supply tightness has fuelled a robusta rally this year, with futures traded in London surging to a fresh intraday high above US$4,300 (RM20,232) in late April.

Futures have since pared back, but “a solution to the current robusta deficit requires higher prices” to pressure demand or prompt buyers to use more arabica coffee, Volcafe said in the report.

The forecast is unwelcome news for coffee drinkers, who are already paying more for their daily brew. The world is facing a shortage of the cheaper robusta variety as El Niño weather conditions continue to harm crops in Southeast Asia.

Still, demand for robusta beans — driven by the rising popularity of instant coffee — hasn’t weakened in emerging markets, but is projected to slow once price increases are passed on, the report said.

“Coffee prices for robusta heavy product blends remain at a substantial discount to arabica containing blends and thereby consumers seeking value continue to choose the former for now,” the report said.

Industry demand has begun to move toward arabica beans in the last six months, but a bigger shift or more robusta demand destruction is needed to remove tightness, according to the report.

Record exports in the prior season from Brazil, the world’s second-largest robusta producer, are offsetting the robusta supply shortfall in Asia, but output from the country is also expected to drop in 2024/25. Severe drought and heat waves last fall reduced crop potential, Volcafe said.

The supply outlook for the arabica variety is brighter, and global coffee supplies are still expected to exceed consumption in the 2024/25 season. But the “surplus has practically disappeared” to just 700,000 bags as poor weather affects crops in Brazil, Vietnam and Central America, Volcafe said.

Source: TheEdge - 24 May 2024

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