In response to smaller crop yields, Vietnamese coffee farmers are restricting coffee sales in an effort to maximize their profits on a paltry harvest this year, as well as fears over diminished crops next year. Drought conditions are expected to reduce the 2015-16 crop yield even further than the current harvest. Vietnam is the world's primary producer of the Robusta bean, a product marketed by Nestle, SA.

Vietnam and Global Supply of Coffee Are Down

The decrease in Vietnamese coffee sales tracks with the decline in harvest, both of which are off by approximately 7% compared to the previous year. Over the past five years, farmers have averaged a 40% sell-off of their harvest by the end of January, where this year they sold only 29% by the end of January (representing a full 11% sales restriction). The coffee crop shortage is not unique to Vietnam coffee, however, as both Brazil and Indonesia have also experienced shortfalls. These two coffee growing nations are also in the midst of a drought, which is putting more pressure on coffee prices. The Brazilian drought is further impacting the Robusta crop of coffee from Vietnam, while Indonesia produces varieties such as Sumatra, Arabica, and Java. The Arabica crop is also feeling pressure from a drought in Latin America.

Coffee Commodities Traders Are Happy

Commodities markets have been reflecting the pressure, and Robusta beans have been trading higher. On February 16, London's Robusta futures market saw May contracts rise 1.5% to $2,066 per ton, after reports of dry conditions in Brazil compounded the bean's plight. The Robusta supply is also experiencing a temporary slowdown due to the Vietnamese Tet holiday, which celebrates the lunar New Year and effectively shuts down the entire nation.

Rising Demand for Vietnam Coffee

Meanwhile, coffee consumption is expected to continue rising by as much as 25% over the next five years. The diminished supplies, in concert with rising demand, are bound to result in a strong upward trajectory for the Robusta bean price. Markets such as China, India, and Latin America, where they are discovering a taste for the dark and smoky brew, are set to drive an increase in demand. While Vietnam is restricting its coffee sales in a deliberate move to raise the price, the international markets, weather predictions, and conditions are also driving the rise. The dollar-point rise for a consumer in the grocery store is not yet known, but coffee lovers worldwide are sure to be digging a bit deeper for a cup of morning java.