Despite fluctuations in the commodity market, the coffee market still maintains its growth momentum and becomes one of the shining investments for 2021.

Steady growth, outperforming other markets

After 10 years, since the commodity price super-cycle in 2011, the world has entered a period which prices have risen to a record high. The year 2021 also witnessed sudden growth in many commodity groups such as agricultural products, metals, and energy.

The staple commodities of each group all hit multi-year peaks, such as the price of corn, which climbed to an eight-year high in April this year, in addition to the price of crude oil, which hit a seven-year peak in October. Copper and iron ore prices also touched all-time highs in May of this year. However, after that, the prices of these items could not keep the upward momentum and peak.

On the contrary, despite not receiving too much attention, coffee prices have still increased well, and remained above the 10-year highs. In the group of industrial materials, the price of cotton had a similar increase, however, the prospect was somewhat inferior to the coffee market, so the increasing momentum was lost in the recent period.

Over the past six months, the coffee market has witnessed very attractive rises with Arabica prices soaring from 41.6% to 5,228.3 USD per tonne, while Robusta prices rose by more than 50% to 2,406 USD per tonne. Compared with other commodities such as crude oil, copper or cotton, the advance in the coffee market is somewhat overwhelming. Besides, this uptrend shows no sign of stopping, as the supporting factors for the price may still remain for the upcoming period.

Worries about supply still push the market up

Like any other commodity or investment product, the price of coffee is also negatively affected by macro factors such as the epidemic or facing the tightened monetary policies by the US Federal Reserve System (FED) in the future. However, the steady increase of both Arabica and Robusta coffee products has received great support as the supply of the world's two largest coffee producing countries, Vietnam and Brazil, is in a sharp decline.

Regarding the Arabica market, Brazil's production was hit hard by drought and frost over the past year. Not only the output of the 2022-2023 crop is reduced, the following crops are also anticipated to be severely damaged, because coffee is a perennial crop, and it will take a long time for the plants to grow. Standard Arabica inventories on the US ICE have continuously decreased since mid-August until now, and the latest inventory level recorded on December 15 is nearly 30% lower than four months ago, currently at 1.56 million bags of 60 kg.

As for the Robusta market, the supply in Vietnam is still the factor that investors are most interested in. Currently, the key coffee growing areas in Vietnam, with a total area of more than 100,000 ha, are all entering the harvest; however, the progress may be delayed due to the scarcity of workers.

Due to the impact of the COVID-19 pandemic, the number of workers pouring into the Central Highlands provinces are fewer than previous years, which will negatively affect our country's supply of coffee exports at the beginning of next year and also slow down the pace of cultivation for the new crops.

The scarce supply is also reflected in the export figures of both Vietnam and Brazil. Both countries' coffee exports have decreased since 2020. In the latest report of the Brazilian Coffee Exporters Council (Cecafe), the country's export volume in November declined by nearly 40% compared to the same period last year. Vietnam's export volume has also tended to go down since early this year, due to a shortage of containers and congestion at ports.

However, according to the latest report of the General Department of Customs, our country's November exports of coffee reached more than 107,000 tonnes, 8.3% higher than October.

The prospect of consumption still faces difficulties

In addition to the news about supply, the consumption prospect is also a strong catalyst for the coffee market. The developments surrounding the spread of the Omicron variant in Europe and North America, which are the two largest coffee consuming regions in the world, are constraining the growth of the coffee market.

There have been studies showing that the current vaccines of manufacturers such as Moderna and Pfizer are not completely effective against the Omicron variant. Governments of many countries are also planning a third injection combined with distancing measures. During this period, the activities of restaurants and cafes may be limited because of the blockade orders, so the demand for coffee may decline in the coming period, despite the fact that the Western countries are entering the year-end holiday.

In that context, the Robusta market will receive more support because the demand for coffee at home will increase sharply. At the same time, the Robusta price is also 56% cheaper than the Arabica price, so this is an extremely attractive discount for coffee roasters. This is also a good opportunity for Vietnamese coffee exporters because Vietnam is currently the number one Robusta producer in the world.

According to the Vietnam Commodity Exchange, the coffee market still has growth potential from now until the end of the year, however, the growth may not be as strong as before because the supply is gradually recovering and major concerns are reflected in the price. Supply chain congestion has been improved compared to the previous period, but coffee consumption demand is still affected by the impact of successive pandemic outbreaks that will be a challenge for the coffee market as well as domestic coffee exporters.

Source: Nhan Dan Online