Coffee stocks in consuming countries play an important role in shaping future coffee price trends. Various types of coffee stocks exist, such as GCA, ECF, and ICE, but for this article, we will focus on European coffee stocks (LIFFE Cert) and explore the related details.
What is LIFFE Cert Coffee Stock?
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In simple terms, for a commodity market like LIFFE (London International Financial Futures and Options Exchange) to function, it requires a system of warehouses for storage, handling, and management of goods for companies participating in the trading process. In the coffee market, LIFFE operates warehouses to manage and handle Robusta coffee contracts traded on their platform.
LIFFE serves as an intermediary between buyers and sellers of coffee. Coffee sellers can “tender” or “sell” their Robusta coffee onto the LIFFE market. After going through the grading process (evaluation and quality checks), the coffee is certified as LIFFE-approved.
LIFFE Robusta Coffee Stock Over the Years (Tons)
Buyers—typically traders and roasters—who do not want to purchase coffee from exporting countries based on FOB terms (delivery within a few days) can opt to buy “paper contracts” for coffee through LIFFE and later take delivery of the actual coffee (referred to as “stop coffee”) at LIFFE’s certified warehouses.
These warehouses, originally located in Europe, have now expanded to the U.S., but they are still generally referred to as “European Coffee Stocks – LIFFE Certified Robusta Coffee.” These warehouses must meet LIFFE’s criteria to store coffee that is certified by LIFFE. Major warehousing companies like Pacorini, Moleberg, and Steinweg operate in these locations.
Since the launch of LIFFE Robusta in October 1993, the coffee stock has grown steadily. Today, there are 18 major ports, primarily in Europe and the U.S., where LIFFE-certified warehouses are located. These include:
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Barcelona (Spain)
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New York (USA)
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Hamburg (Germany)
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Marseille (France)
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Le Havre (France)
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Rotterdam (Netherlands)
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Bremen (Germany)
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Antwerp (Belgium)
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London (UK)
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Trieste (Italy)
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Genoa (Italy)
Among these ports, Antwerp is the most commonly used for coffee shipments, due to lower transport costs. It’s also worth mentioning that LIFFE accepts Robusta coffee from several countries, including Vietnam, which has a significant share in LIFFE’s warehouse stocks.
LIFFE Robusta Coffee Stocks in Recent Years (Tons)
Impact of LIFFE Coffee Stocks on Coffee Prices
LIFFE’s Robusta coffee stock has a significant impact on coffee prices in both the LIFFE market and Vietnam’s domestic coffee prices. When stock levels decrease, it suggests an increase in demand, and if coffee imports from exporting countries cannot meet this demand, coffee prices are likely to rise. Conversely, when stock levels increase, it signals an oversupply, causing prices to trend downward.
If stocks decrease, coffee traders will closely monitor the export potential of key Robusta producers like Vietnam and Indonesia. If these countries have low supply, the likelihood of price increases becomes high. However, if the supply is abundant, as it currently is, even a reduction in stocks may not result in significant price hikes in the London market.
For instance, on January 6, 2014, European coffee stocks reported a reduction of 182 lots (1,820 tons) compared to the previous report, bringing the total to 2,820 lots, equivalent to 28,200 tons.
Prospects for Vietnamese Exporters in the LIFFE Market
Currently, Vietnamese coffee exporters sell their coffee through commercial trading companies and have not yet engaged much in the LIFFE market for several reasons.
Firstly, Vietnam’s coffee trading industry is still underdeveloped in many areas, including capital, market access to LIFFE, quality management, and risk handling. Secondly, the structure of the LIFFE market is quite complex and is more suited for large players with strong financial backing and experience. Without a clear and decisive strategy, small companies could easily face losses.
Currently, only a few foreign corporations (around one or two) are participating in this market, and they trade based on specific market conditions, not always successfully.
Typically, the coffee price for Vietnam (discounted price) needs to reach a certain threshold before it becomes profitable to tender coffee to LIFFE. For example, in previous years, the discount for G2, 5% coffee ranged from -150 to -200 USD/MT, making it profitable for some companies to tender coffee to LIFFE. However, currently, with the discount standing at +10 to +20, it is impossible to tender coffee for a profit, as the loss would be about 50-100 USD/MT.
In conclusion, while the potential for Vietnamese coffee exports to the LIFFE market exists, challenges remain in terms of infrastructure, market access, and competitiveness. The benefits of engaging with LIFFE could be significant, but a strategic approach and development of the industry are essential to succeed.