It is well-known that the current coffee market is in a precarious balance between supply and demand, with supply often seeming heavier, which makes coffee prices highly sensitive to news that leans toward lower prices. However, we cannot deny the fact that the coffee market is increasingly moving away from the basic supply-demand factors and is becoming more dependent on market positions and global financial issues rather than the internal factors of coffee prices.
In this “whirlwind” of price fluctuations, we, the producers and sellers – from large traders to small farmers – feel like pawns controlled by the “big players” in global finance, never truly having a decisive role in the market.
Looking back to the end of 2013 and the beginning of 2014, the domestic coffee price was around 34,000 VND per kg (it was even lower at one point, only 30,000 VND/kg). Many sources predicted that supply was exceeding demand, and roasters were unwilling to purchase. Some even speculated that Vietnam would have to sell off its stock near Tet in 2014, causing the market to be sluggish.
If we take early 2014 as a reference, on January 2, 2014, the London market closed at the lowest point, at 1,625 USD. All sources of information were in agreement that supply was abundant, with stocks in consuming countries on the rise. But suddenly, within less than two and a half months, on March 12, 2014, the coffee price skyrocketed from rock bottom to the heavens, reaching 2,251 USD (see chart).
This clearly shows that supply and demand weren’t the issue. Global supply and demand didn’t suddenly change on their own. The futures market, long since no longer a place for actual buyers and sellers, still holds us captive. Despite this, we cannot break free from it.
Looking at the past, this is not the first time we, the sellers, have had to endure such earthquakes. However, the price we’re paying for this latest downturn, especially after the May 21st drop, is much heavier because we are in a period where goods are stored in warehouses with unpaid prices still to be locked in.
No one can be sure what will happen next, but at this moment, we are receiving various forecasts on production from major coffee-producing countries, which are inconsistent. Each change leads to market fluctuations, and the cycle of repeating these forecasts is much like the story of Tăng Sâm, a man known for his good nature in the past, who was falsely accused of murder. The rumor repeated so often that even Tăng Sâm’s own mother believed it and fled in fear, believing her son had committed the crime.
No one can say for certain that after this price drop to the stop-loss range of 1,600-1,650 USD for stored goods, coffee prices will follow the same pattern. Will Vietnam really face a crop loss of at least 20% in the 2014/2015 season? After Brazil’s harvest, will the yield be lower than expected, or will the forecast for a colder-than-usual winter in July hold true? These repeated themes serve financial speculators, and if they happen again, we’ll still be left to follow the trends, as we have no other choice.