Robusta coffee traders in top producer and exporter Vietnam are holding onto stocks of the bitter bean, exacerbating a supply shortage that has pushed benchmark futures LRCc2, used to price robusta around the world, to record highs.
The shortage, traders told Reuters, has resulted in near-dated robusta futures trading at a premium to far-dated ones, an inverted market structure that rewards speculators for buying long positions, or bets on future price rises.
The structure, in other words, is tempting speculators to hold onto their bets or double down and expand them, leading Vietnam-based traders at top global trade houses to baulk at selling in the belief that even higher prices are on their way.
"It's difficult to see why prices would drop at the moment," said a Europe-based trader at a top global trade house.
"We're in a flat to deficit year, coffee in Vietnam is in very strong hands and farmers there have sold out. The funds are not going to start selling anytime soon, for them it's perfect, they make money every time they roll their position," he added.
Against that, however, traders note that stocks on the ICE exchange have risen some 30% since mid-February, while Vietnam's coffee exports are down just 3.9% in the first five months of this year versus last.
"I think the market is being squeezed. We need to see (certified stocks) and exports lower to make sure the coffee is really not there," said another Europe-based trader.
Be that as it may, the supply tightness, whether real, artificial or a mixture of the two, is leaving the wider market on edge, with any hint of bullish news sending prices soaring.
ICE September robusta futures LRCc2 hit a record $2,790 (€2,584.44) a tonne last Friday after authorities declared the El Nino weather phenomenon had officially begun, leading dealers to fear even worse tightness as Vietnam's next crop might be hit.
There are also plenty signs demand for robusta is growing as roasters switch out of arabica into the cheaper bean, typically used to make instant coffee but which can also be added to roast coffee blends dominated by arabica.
EU And Britain
Customs data compiled by Rabobank shows that robusta imports into the European Union plus Britain, a major coffee consuming region, accounted for 36.3% of total coffee imports in the 12 months to March, versus 31.5% in the previous year.
"It looks like the only way to solve (the robusta price rally) is for arabica prices to come off. It will happen eventually, maybe in the third or fourth quarter, but at the moment no roasters are switching back to arabica," said the first Europe-based trader.