Every day at 5:30 p.m., Reuters delivers coffee price updates to the registered computers of several Vietnamese coffee businesses. Companies are willing to pay thousands of U.S. dollars for these updates, because this is a key step in coffee export through futures contracts on the international futures market—a method still quite new in Vietnam, yet offering many advantages over traditional coffee export practices.
This trading model has been used globally for a long time, but has only recently been introduced in Vietnam. It promises to fundamentally transform the way agricultural exports are conducted, ensuring greater effectiveness despite volatile world market prices. Coffee is among the first commodities in Vietnam to adopt this model.
The unique feature of this trading method is that contracts between buyers and sellers are concluded online or via telephone, based on trust.
A Night of Coffee Trading
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In Brazil, one of the world’s largest coffee producers, exporting coffee via futures contracts on the international market has been a long-standing and familiar practice—even for farmers. After harvest, coffee is stored in cooperative warehouses. From these trading rooms, farmers can monitor London coffee prices online. If prices are favorable, they can decide to sell immediately. Over 1,400 Brazilian coffee exporters take full advantage of this method.
At the 2/9 Coffee Export Company in Dak Lak Province, the trading floor becomes lively around 5:30 p.m., when global coffee price updates arrive. Decisions to buy or sell are quickly made. Hundreds or even thousands of phone calls are placed to customers to announce sales decisions once prices seem favorable.
An electronic trading platform is then used for buyers and sellers to negotiate prices and sign contracts. Coffee will be delivered at a future date mutually agreed upon. At that time, regardless of whether market prices have risen or fallen, the contract price remains locked in. This means both buyer and seller can calculate profits or losses immediately after making a decision.
In this type of trading, coffee exists only on paper, but the profits are real. Essentially, this is signing contracts online and selling coffee by phone. Typically, a trading session concludes around midnight. After each day’s work, price charts and tables are updated so coffee producers can forecast future prices.
Why Trade Through Futures Contracts?
Coffee has long been one of Vietnam’s key agricultural export products. In 2004, Vietnam’s agricultural and forestry export turnover reached USD 4.3 billion, with coffee contributing USD 590 million.
However, numerous factors influence coffee exports. Coffee is considered one of the most volatile commodities of the past decade. Moreover, Vietnam’s coffee production is highly inconsistent year to year.
Farmers constantly face the worry of bumper crops and poor harvests. For example:
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During drought years, production falls—but farmers might not necessarily lose money, as prices rise due to scarcity.
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In good harvest years, production rises—but farmers may not win, as market prices can drop.
This sensitivity and unpredictability make the coffee market challenging not only for farmers but also for exporters, who fear sudden price declines. Importantly, Vietnam’s coffee prices in the global market largely depend on Brazilian production levels, which, according to experts, decline every two years in a natural cycle.
Dak Lak Leading the Way
Dak Lak Province has taken the lead in adopting the futures trading model for coffee exports. Since 1994–1995, businesses in the Central Highlands have used this method, initially through trial and error.
For example, at the 2/9 Coffee Export Company, price charts have been developed based on trading sessions. But the early lessons came at a cost: risks and price differentials (“trừ lùi”)—sometimes reaching USD 100–200 per ton.
Today in Dak Lak, “selling coffee online” has become familiar. Mr. Nguyen Van Lang, Chairman of the Dak Lak People’s Committee, is well-versed in this method and passionate about the province’s coffee export industry.
According to him, the greatest advantage of this trading model is the ability to sell coffee for future delivery at today’s price, a price that businesses know is reasonable. As a result, companies can minimize risks, something no traditional coffee trading method can match.
Building Experience and Skills
Vietnamese coffee exporters still need to refine their trading practices to succeed in this new market.
“To win in the game of coffee export on the futures market, companies must be proactive, gain experience, and—above all—be sharp, decisive, and courageous,” says Mr. Le Duc Thong, Director of the 2/9 Coffee Export Company, summarizing the lessons learned in bringing Vietnamese coffee to the world.
Future Prospects
Looking ahead, Mr. Nguyen Van Lang is optimistic about establishing an agricultural trading floor in Dak Lak. He envisions creating a “coffee market” where farmers can store their coffee, monitor daily prices, and sell when prices are favorable.
Coffee is just the first step. In the future, other agricultural export products will also enter the futures market.
Without the ability to lock in prices, Vietnamese exporters will be at a disadvantage, since most export contracts are currently priced at the time of delivery, not at the time of the original transaction.