European physical coffee trade ground to a halt this week as London robusta futures sped to 6-1/2-year highs, fuelled by fears of tight supplies ahead, traders and analysts said on Thursday.
Concerns that the upcoming crop in top robusta grower Vietnam may not be sufficient to cover the supply shortfall is reflected in the price structure of the futures market.
Funds, keen to take advantage of any possible shortfall, have taken positions in the further out contracts, pushing the market into premium out until May 2007, traders said. Prices for forward months are usually higher than nearby months in a normal market situation.
Andrea Thompson, an analyst at CoffeeNetwork, said there was nervousness in the market that bad weather in Vietnam could stall the harvest, as it had in the past.
"It's in people's minds that last year wet weather caused delays. It (supply) is so tight now and people are thinking: What happens if it's delayed," she said.
Dwindling coffee stocks have forced exporters in Vietnam to stop making offers for immediate loading to focus on shipments under deals that had been signed earlier.
While no defaults were reported, recent rains have slowed coffee processing.
"Some people are thinking the Vietnamese coffee will not be enough," one trader said. But other buyers were less concerned and expected beans to enter the market in December and January and resolve the current shortage of robusta.
For now, buyers were content to stay out of the market unless absolutely necessary. "No roasters will pay September and November prices," one dealer said.
Benchmark coffee futures prices have risen about 11 percent since the start of the month to hit their highest since November 1999.
Differentials have eased a little to compensate for the surging futures price, Vietnam grade two was quoted in Hamburg on Thursday at $20 under London, versus level a week ago. Benchmark November coffee fell $9 to $1,431 by 1545 GMT, off its peak of $1,477 earlier in the session.
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