Hanoi, 3 December 2010

Coffee traders, policymakers and lenders will be on alert for data about Vietnamese bean shipments and quality at a conference next week as concern spreads that bad weather in the country's robusta heartland could jack up prices.

The annual Coffee Outlook conference set to take place in Ho Chi Minh City, the main coffee trading market of the world's second-largest producer, on Dec. 8-9 will also provide crop updates from top producer Brazil as well as Indonesia and India.

Rains falling for most of last month have delayed the harvesting in Vietnam and also prevented the ripening process of coffee cherries in the Central Highlands coffee belt, which has lifted London robusta futures prices to two-year high.

"Rains have not stopped fully yet so crop production is lagging behind," Chairman Luong Van Tu of the Vietnam Coffee and Cocoa Association told Reuters ahead of the conference, where he was expected to provide the latest news on Vietnam's production.

"The main driving factor is the weather, which is affecting the harvesting season in Vietnam," said investment analyst Ker Chung Yang at Singapore-based Phillip Futures Pte Ltd.

"We continue to see the harvest progress in top robusta producer Vietnam affected by the rains." Rain was forecast to linger into early December when the harvest should have peaked after the rainy season ended last month, a month later than usual, a state forecaster has said.

The unseasonal rain provoked mixed feelings among traders, as buyers worried about deliveries while sellers became more confident about bean quality. Farmers aim to pick cherries when 95 percent of the crop is ripe to provide the best beans.

"The flow (from Vietnam) this month will have no problems," a Vietnamese trader at a foreign company in Ho Chi Minh City said. "Once there are three sunny days in a row, the beans will be dried nicely."

Processors said it would take about two weeks from the moment coffee cherries are picked until the beans are delivered to the port for loading. Rain during the outdoor drying process can extend the process by another week, they said.

"The rains have in fact improved the quality of beans because once it slowed the harvesting last month, farmers delayed the moment they start picking so more cherries will be mature," an executive of a Vietnamese major coffee export company said.

The arrival of fresh beans has not picked up yet, said the executive, who declined to be identified by name. Buyers sometimes take the opportunity of a trip to Vietnam for the conference to visit suppliers and survey production in the Central Highlands, which produces 80 percent of the crop.

STOCKPILING UNLIKELY THIS MONTH

The conference was expected to also touch on quality issues, the outlook for the soluble coffee market, financing of the coffee trade and roasting of specialty coffee.

Traders were also eyeing an industry-proposed plan to stockpile between 300,000 tonnes and 500,000 tonnes of coffee for six months, or more than 40 percent of Vietnam's 2010/2011 crop as the plan would raise robusta prices if approved.

"Prices are good now, so the stockpiling plan does not make much sense," the executive said, adding that, unlike the previous plan, the scheme this time would not subsidise interest rates, which made exporters more reluctant to implement it.

The stockpiling plan was initially designed to slow the coffee inflow into the world's market so as to raise prices, Vietnamese industry officials have said. Robusta prices stood at 33.9 million dong to 34.0 million dong ($1,744) per tonne on Thursday in Buon Ma Thuot, the capital of Vietnam's key coffee growing province of Daklak, down from 34.0 million to 35.2 million dong last week.

The price is now about 70 percent above farmers' production cost, which stood at 20 million dong per tonne, they told Reuters last month.

MIXED VIEW ON PRICE TREND

Vietnam is expected to complete its coffee harvest by early January, nearly a month earlier than usual, due partly to high labour costs, farmers said.

"The current high prices are not sustainable as after the harvest speculators will push Vietnam for lower prices," a second trader in Ho Chi Minh City said. On the other hand lower world stocks could provide support, even though traders did not give any specific price forecasts for the first quarter of 2011.

"I think (prices) will continue to be higher, while there's another potential scenario that we might see in the coming week that ICE coffee will track LIFFE coffee. We see that certified arabica stocks on ICE are dropping," Yang said.

ICE certified arabica stocks recovered to 1.724 million bags on Dec. 1 from 1.722 million bags on Nov. 30 but still lower than 1.744 million bags on Nov. 29.

"I don't see any chance for prices to drop," said Suthep Wiriya-usahakul of Navakij Trading. "We, Thai producers, still need to import from Vietnam every year and are likely to import more," he said. ($1=19,495 dong).

Ends --

Reuters - for Commodities Now.