Vietnamese Farmers Withhold Coffee Deliveries Amid Global Price Surge, Tightening Robusta Supply

Farmers in Vietnam, the world's largest supplier of robusta coffee, are refusing to deliver coffee sold under existing contracts, demanding renegotiations following a global price surge to a 28-year high. This standoff is contributing to a significant rally in robusta prices, with the country reporting its lowest coffee production in six years for the 2022/23 season at 26.3 million bags. The current season's yield is also sub-par, with an estimated production of 26.6 million bags according to the U.S. Department of Agriculture.

The situation has led to delays in the delivery of 1-2 million bags of Vietnamese coffee from last season, equivalent to up to 8.5% of the country's total coffee exports. These delays are now affecting the global market, causing a tightening of robusta supplies. The benchmark world price index for coffee, COF-DWAROB-ICO, has reached its highest point since 1995. Although a significant portion of the delayed coffee has been delivered, the reduced availability for this season is exacerbating the price rally.

Due to the soaring spot market prices, even global traders with written contracts are facing challenges, as suing local suppliers for non-delivery is not seen as cost-effective. Some traders are attempting to negotiate with Vietnamese suppliers, offering to take a portion of the low-priced coffee in return for future orders at current, higher rates. The overall scarcity has driven many to the ICE Futures Europe exchange for coffee, where robusta stocks are at a 10-year low. This scarcity is expected to persist until at least mid-2024, when the new Brazilian robusta crop is harvested.