Pricing Trend

Production cost and yields:

Cost: The purpose of studying a real cost of production is to observe the breakeven point that triggers a sharp increase in farmer selling or defaults on their bank loans.
Estimates of production costs vary widely between the regions and production methods. State farms appear to have the highest costs of production, and in some cases claim costs reaching up to usd 1000/mt. Their calculation typically included some of the cost of social benefits they provided to farmers and community.
Production costs for private farms range from about usd 200 up to around 600. These figures do not include establishment, eplacement costs, taxes, interest rate costs…
Vietnam green bean coffee break-even( BE) analysis for farm gate coffee: (assuming yield of 1 mts and 2 mts per ha)

Sample costs per ha:
1mts
Input Cost(usd) %
Fertilizer 108.5 48.65
Fuel/water 67.4 30.22
Pesticides 7 3.14
Labor 0 0.00
Taxes 0 0.00
Finance 23.7 10.63
Milling 16.4 7.35
BE cost 223 100.00

  • exchange rate: 2002/2003: 15.312 vnd/$

Source: Mercon Corp. (2002/2003)

Yield: Vietnam has achieved extraordinary yield that have risen from just over 1 ton per ha in the early 1990s to more than 2 tons in the late 1990s and averaging 1.85 tons per ha in the first years of the century. To put this in a global perspective, Brazil s yields in the record 2002 Robusta crop were estimated at a approximately 1.8 tons per ha. By now, with good care and adequate application of fertilizers, we now achieve very high productivity of 3 or 4 tons/ha, even 5 tons/ha in some places.

These high yield figures are very much dependant on high inputs that most farmers were unable to sustain during the spate of low price. Yield figures also suggest that the sensitivity of production to input changes varies with input levels. For example, 1 tons of NPK produced 1 tons of coffee but with 1.5 tons of NPK the output rose to 2.5 tons of coffee.
The yield on a mature tree may respond to the likely resources that a farmer has from one season to pay for the inputs in the next, given that generally low level of access to credit. Its impossible to make an exact elasticity calculation, but it does suggested that either a period of low prices or raised costs that leads to inputs being withdraw.

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Production potential

For the medium to longer term, the government has said it would stabilize annual Robusta production at about 600000 mts, and increase current Arabica production to 120000 mts. However reducing Robusta output to the governments target would actually require eliminating substantial more hectares of the current production assuming continued output of at least 2 ton/ha and with the census of productive coffee trees rising from 750 million to 900 million trees. While this may be possible in the long run, most observers believe it is unlikely to occur in the near future.

There is no simple mechanism to achieve this change, especially in the face of continued government support such as loan repayment extensions. At the current June 2006, price level in excess of USD 1100 per ton it is unlikely that any farmers that did not remove trees when prices were lower would remove them now. As more in efficient producers may have been the first to exit production, the remaining producers have learned how to optimize input usage and manage their farms more efficiently. The remaining farmers will therefore be better placed to manage another price fall or to resist incentives to stop producing.

PRICES

Average prices of Vietnam Robusta coffee been (grade 1) were between VND 17,500 – 18,500/kg ($1.1 – 1.16/kg) in March 2006, an increase of 28% compared of prices quoted in Oct. 2005 and double what they were 18 months ago. However, in recent months the rise has moderated. This is in line with recently moderating world prices. According to local trader, domestic coffee prices should maintain their current high level in the second half of the 2005/2006-crop year because of this year’s smaller crop.
Since 95% of production goes to export, export prices are closely related to domestic prices and have followed the same general trend. So far, the monthly average export prices in 2005/2006 is the highest in the last 5 years.

Vietnam’s Average Coffee Export Price of Robusta (Year 1994/1995 to 2005/2006)

Price of Coffee in World Stock Exchange

Three of the worlds leading futures exchanges:
The New York Board of Trade (NYBOT), the Tokyo Grain Exchange (TGE), and Euronext LIFFE (London International Financial Futures and Options Exchange). The NYBOT and TGE trade futures on coffee produced by Arabica coffee beans, which grow mainly in the tropical highlands of the Western Hemisphere , make up the bulk of world production, and are the preferred, higher quality beans. In London , futures are traded on coffee produced by Robusta coffee beans, which are less mild than Arabica and are grown largely in the low, hot areas of Africa and Asia .

Price on futures market is decided by supply and demand of the market members: speculators and hedgers.
Speculators are those who make profits from the pure changes in prices. And hedgers (mostly coffee traders) are those who seek to protect their profit from any changes in prices.
The local market price will normally based on the Liffe/ Nybot level + a certain differential depends on grade of coffee.
The differentials and futures price move quickly and often in response to key supply and demand factors, such as weather, quality, stock, political policies, labor contracts, and crop predictions, price predictions, rumors,…

NEWS
Coffee Price Increases Again
(27/03/2008 11:37)

The price to purchase fresh coffee at the garden went up to more than VND40,000 per kilo at the beginning of this March. This has been the highest price in the past 10 years. Ly Thanh Tung, head of the Dak Lak province department of trade and tourism, said that the price increased due to Indonesia - the world's biggest coffee exporter - that finished its coffee harvest and hadn't begun another coffee harvest yet leading to decreased supply.

The sudden, big price increases even surprised coffee businesses because they expected that the price would have a growth similar to that during the same time in 2007.
Almost one week after it came to VND40,000, the price fell to VND35,000. Mr. Hung - a coffee farmer in Dak Lak - said that he and his wife agreed to retain their coffee waiting for the price to increase further hoping that the price will improve in several days. But the price did not go up but fell by VND5,000, he said. If Hung sold his coffee for VND40,000 per kilo he would earn VND5 million more for each tonne of coffee.
Many coffee purchasing businesses regretted paying VND40,000 for a kilo of coffee seeing that they could save VND5 million per tonne only several days later.
Afraid that the price will further decrease, farmers rushed to selling coffee. Many banks limited loans, resulting in a short supply of cash for different activities including coffee purchase. Many coffee purchase agents in the city of Buon Ma Thuot refused to buy coffee due to cash shortages.
The Vietnam Coffee and Cocoa Association (VICOFA) said that the coffee price in Vietnam dropped because the coffee price in the London market fell by US$146 per tonne. Businesses sold a large amount of coffee when the price increased, which partially cause the price to drop.
Several days after the price fell to US$2,628 per tonne, it went up again to reach US$2,758, causing the price in Vietnam increase again. Experts said that the price increased this time because speculators and goods funds were buying more coffee with the US dollar whose value is falling against euro and other foreign currencies. Another reason is that many businesses purchased more coffee to fulfill their signed coffee export contracts on time. When the price increased again, a number of farmers and coffee purchase agents wanted to retain product waiting for the price to further grow.
In the 2006-2007 crop, Vietnam exported more than one million tonnes of coffee with an average price of US$1,500 per tonne earning US$1.6 billion in revenue. In the 2007-2008 crop, with an improved price, the revenue is expected to be similar to that in the 2006-2007 crop even though coffee production in the 2007-2008 crop fell by 15 percent. Tung predicted that the coffee price will still be high until mid April when Brazil and Indonesia begin their new coffee harvest. The price will not be less than VND35,000 per kilo when Brazil and Indonesia enter their new coffee harvest crop, and the price of about VND35,000 would maintain until the end of 2008, he said./.
(SOURCE:http://www.ven.vn/trade/coffee-price-increases-again/)

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