6AKARTA, April 16, 2011 - Indonesian robusta coffee beans were offered at a premium to London futures this week for the first time since June 2010 because of tight supply after rain damaged coffee cherries early this year, traders said on Friday.
The prospect of a relatively poor crop could mean the premium holding for some months, they said.
Sumatra robusta beans Grade 4, 80 defects, were offered at a premium of $20 a tonne to the July contract for shipment in May/June, or $2,499 a tonne on a free-on-board (FOB) basis, in the main growing province of Lampung on Sumatra island, traders said.
"This year's main harvest is not very good because there was too much rain during flowering, hampering growth of coffee cherries," said a Jakarta-based trader.
"This has pushed up robusta prices in Lampung to a premium of $20."
At the end of March, Sumatra robusta was offered at a discount of $50-$70 a tonne to London's July contract.
LIFFE July robusta ended down $31 at $2,469 a tonne on Thursday, but the contract has gained 17 percent so far this year because of tightness in supply.
The International Coffee Organization (ICO) has estimated coffee stocks in producing countries at the beginning of the 2010/11 crop year were at their lowest since it began keeping records in 1965.
Indonesian robusta beans were likely to be at a premium until the harvest ends because of an expected lower crop this season, traders said.
"Prices can return to a discount if London rallied to $2,500 or $2,600 and supply is ample," said a trader in Bandar Lampung, the key port for Indonesia's robusta exports.
In mid-June last year, Sumatra robusta traded at a premium of $10-$50 a tonne to London's future as rains had delayed harvest to June from March, squeezing supply.
Thin supply had forced Indonesian exporters to stock pile 120,000 beans last year and gradually released them early this year as prices improved, boosting exports in March.
Indonesia's robusta shipments from the main growing areas in Sumatra more than tripled in March to 29,391.88 tonnes from a year ago as farmers sold stocks to bank on high coffee prices.
Heavy rains last year caused some areas in Sumatra to start the harvest early.
Harvests usually begin in March or April, but farmers have been picking cherries since January as the flowering season began earlier in some areas. The previous crop ended last August.
"Some coffee areas won't even have a peak harvest this year. Farmers can pick cherries throughout the year because higher rainfall has caused sporadic harvests," the Lampung trader said.
Exporters in Lampung remained cautious about selling from their stockpiles on expectations of a smaller harvest this year, wanting to ensure they have enough beans for forward contracts.
"Exporters are now only offering cargoes for nearby shipments. They don't want to offer forward shipments because they are worried about limited supply and trying to avoid default on long-term contract," said the Lampung trader.
Robusta, used in instant coffee, mostly grows in Lampung, Bengkulu and South Sumatra provinces at the southern end of Sumatra island and accounts for about 85 percent of Indonesia's coffee production. The rest is higher value, aromatic arabica coffee.
In Vietnam, the world's top producer of robusta, indicative offers for robusta grade 2, 5 percent black and broken coffee were steady from last week at a discount of $70 a tonne to London's July contract.
"Vietnam is still offering cargoes. The country's suppliers still have around 400,000 tonnes of uncommitted coffee beans in their hands," said the Jakarta-based trader, who also trades Vietnamese coffee.
WEEK AHEAD
The premium for Indonesian Sumatra beans is likely to stay, with few signs of supply picking up although the main harvest is in progress.
"It's already April but the volume of bean deliveries is not significant. Farmers may need time for picking cherries and drying them," the Lampung trader said.
The Indonesian Coffee Exporters Association expects production at the world's second-largest producer of robusta to fall by 30 percent this year from an estimated 600,000 tonnes in 2010 after rain in key producing areas damaged cherries.
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