Coffee Shippers in Vietnam Told to Avoid Forward Sales by State

By Bloomberg News

October 19, 2011

Oct. 19 (Bloomberg) -- Coffee exporters in Vietnam, set to ship a record harvest, are being urged not to sign so-called forward contracts unless they have beans in hand after some companies didn’t honor deals earlier this year as prices jumped.

“We have told state-owned coffee companies to not sell forward when they don’t have actual coffee,” Deputy Minister for Agriculture and Rural Development Diep Kinh Tan said by phone today. The Vietnam Coffee & Cocoa Association, or Vicofa, has been asked to give private firms the same advice, he said.

Most output in Vietnam, the largest grower of robusta used in espressos, is grown by smallholders, who sell their beans to middlemen and exporters. Shippers delayed or canceled as much as 60,000 tons of exports from the last crop in June and July as prices rose, according to Sucafina, a Geneva-based trader.

“The coffee association and the agricultural ministry have told local coffee companies to not sign future contracts with long deliveries,” Nguyen Van An, general director at Thai Hoa Production & Trading Corp. and a Vicofa board member, said by phone on Oct. 13. The aim is to avoid a repetition of the “bad experiences in the last crop,” An said.

Robusta on NYSE Liffe in London -- which rose 15 percent in the first quarter, and touched a three-year high of $2,672 per metric ton on March 18 -- ended at $1,886 per ton yesterday. In Vietnam, the local price leapt 39.5 percent to 51,600 dong ($2.46) per kilogram in June from the start of the year, according to data from the Dak Lak Trade and Tourism Center.

Biggest Harvest

Many companies signed forward contracts after the last crop, Tran Hieu, vice chairman of the Provincial People’s Committee in Dak Lak, Vietnam’s largest growing region, said Sept. 30. When the price went up, they defaulted to avoid collapse, Hieu said.

Output from this harvest, which started this month, may reach a record 1.32 million tons, according to the median estimate in a Bloomberg survey of 12 growers, traders and exporters in September. That compares with 1.17 million tons last year, according to a central government report on Oct. 3.

“We will do outright trading only, not forward trading, for this crop given the complicated development of international coffee prices,” Cao Van Tu, director of Dak Lak-based Ea Pok Coffee Co., said Oct. 14. Outright deals involve beans in hand.

Traders in Vietnam have sold about 667,000 bags from the 2011-2012 season, about half the total at the same time last year, F.O. Licht said in a report Oct. 5. About 5 percent of Vietnamese exporters have signed forward contracts from this harvest, compared with 15 percent to 20 percent last year, said An at Thai Hoa Production. A bag weighs 60 kilograms.

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With assistance from Isis Almeida in London. Editors: Jake Lloyd-Smith, Ovais Subhani

To contact the reporters on this story: Nick Heath in Hanoi at nheath2@bloomberg.net; Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net