15/08/2025
COFFEE MARKET ANALYSIS AND FORECAST
1) Market Diagnosis 2023 → Present (Main Drivers)
Robusta supply tightened due to weaker output from Vietnam & Indonesia, with thin stocks:
• In 2024–early 2025, Vietnam’s Central Highlands suffered severe drought, declining groundwater, and pest issues; farmers held back stocks, bringing ending stocks to extremely low levels. This pushed domestic prices to record highs and drove Robusta ICE London to historic peaks in 2024–early 2025.
• Indonesia was hit by the 2023/24 El Niño, causing crop losses; recovery is expected in 2024/25–2025/26 but will depend on rainfall.
• Supply chain and ICE exchange stocks in Europe reached historic lows during 2023–24, making prices highly sensitive to shocks (this low-stock environment continues into 2025, with month-to-month swings).
Demand shifting to Robusta, but signs of fatigue:
• Over the past two years, many roasters increased Robusta ratios (cheaper vs. Arabica) → short-term Robusta demand is inelastic.
• Since Q1/2025, however, high prices have led to demand rationing: some roasters are delaying purchases or reducing contracted volumes.
Political–regulatory & logistics factors:
• EUDR (EU deforestation regulation) enforcement has been delayed to late 2025/mid-2026, reducing near-term compliance pressure for Vietnam’s coffee supply chain.
• US import tariffs (April 2025): both Arabica and Robusta now face new tariffs (rates vary by origin). This could reroute trade flows, slightly reducing US demand for Asian Robusta and creating basis volatility.
• Freight costs: The Red Sea crisis pushed rates up sharply in 2024; by mid-2025 they have eased but remain above pre-crisis levels → less pressure on roaster procurement costs, but still not “normal.”
FX: USD/VND at ~26,200 (Aug 2025) makes domestic VND/kg prices highly sensitive to ICE futures changes.
Structural production risks in Vietnam:
• Some Robusta areas in Dak Lak and nearby provinces have been converted to durian over the past few years, making Vietnam’s Robusta supply less elastic in the medium term.
2) 12-Month Supply–Demand Balance Outlook
Global supply “relief valve” is opening, but still not abundant:
• Brazil Conilon (Robusta) 2025 harvest is strong, possibly exceeding earlier estimates – a key price-capping factor in H2 2025.
• Indonesia: USDA forecasts 2025/26 output up ~5% to ~11.3M bags; if weather is favorable, exports could reach 6.5M bags.
• USDA 2025/26: Global coffee output up ~4% (new record), but ending stocks remain low after several deficit years → prices will stay sensitive to weather headlines.
Weather/ENSO: NOAA projects a La Niña watch / ENSO neutral for 2025–26 → generally wetter in parts of SE Asia; if correct, Vietnam’s 2025/26 Robusta yields could improve, though extreme rain and erratic weather remain risks.
3) Quick Conversion: Futures → Domestic Prices (VND/kg)
Approximate
VND/kg ≈ (Robusta ICE $/t × USD/VND) / 1000 ± basis (basis depends on quality, logistics, financing). With USD/VND ≈ 26,200:
• $3,300/t → ~86.5k VND/kg
• $4,000/t → ~105k VND/kg
• $4,800/t→~125.8kVND/kg
(Local basis typically ±5–15k VND/kg depending on season and market tightness)
4) Scenario Forecast (6–12 months)
Base case (~50% probability)
• Large Brazil Conilon crop, gradual Indonesia recovery; Vietnam’s Q4/2025 harvest better than last year; EUDR delay; freight rates stable.
• Vietnam domestic prices: 90k–115k VND/kg, with a dip to 90–95k during harvest (Q4/2025) then a rebound to 100–110k as chain stocks remain thin.
• Risk: A stronger USD could lift VND/kg above model projections.
Bull case (25%) – renewed VN/ID supply squeeze
• Central Highlands hit by abnormal rains, pest damage; farmers continue stock retention; Indonesia’s recovery stalls; freight rates rise; US tariffs disrupt flows.
• VN prices could retest 120–140k VND/kg (short-term peak during tightest supply window).
Bear case (25%) – supply surge + weak demand
• Brazil Conilon beats expectations; Indonesia output jumps; US demand slows due to tariffs; roasters keep delaying buys; USD softens.
• VN prices could fall to 80–90k VND/kg at the harvest low if farmers sell aggressively.
Bottom line: Price swings will remain wide, but the 12-month “median” is likely below the 2024–early 2025 peaks unless Vietnam faces a new weather shock.
5) Practical Strategy
For roasters/processors
• Staggered buying around 90–100k VND/kg in Q4 as new crop arrives; lock 50–60% of needs for 6–9 months via fixed/basis contracts; use call options on ICE for upside risk cover (options are pricey but worth it given 2025’s weather sensitivity).
For Vietnamese exporters
• Track London–HCM basis and Robusta forward curve carry closely; avoid over-selling physical vs. long futures when stocks are thin to prevent margin calls – several exporters in 2025 have been squeezed this way.
• Keep preparing traceability even with the EUDR delay, since the 12/2025–mid-2026 deadline will arrive quickly; early compliance can bring a price premium.
For farmers
• When prices are >115k, consider forward-selling 20–30% to lock in profits; reinvest in drip irrigation/mulching given recurring early droughts. (Local reports warn of falling groundwater and early-season dryness in 2025.)
(Source: Compiled and analyzed by Ms Larissa)