Europe's physical coffee market featured demand this week for low quality arabica supplies as a substitute for robustas, traders said. The gap between arabica and robusta prices has narrowed significantly in recent weeks. New York arabica futures have fallen sharply during the last month while London robustas have held just below a recent nine-year high.
"Robustas have become expensive," one trader said. Sluggish demand in the physical market for robustas saw their discount to the futures market widened further this week with grade two Vietnamese coffee at a discount of about $70 to London September, FOB, versus a $50 discount a week ago.
"It (the differential) is weakening but who is going to buy," one trader said. High and rising ocean freight rates helped to diminish the value of supplies in producing countries, traders said. They noted roasters were looking to buy robustas only on a "hand-to-mouth" basis amid expectations that prices should fall later this year with the harvesting of a large Vietnamese crop expected to be underway in October.
There had been initial expectations that the Vietnamese crop may be below last year's record level with trees tired but high prices had prompted heavy input use and near ideal weather has helped the crop to flourish, traders said. Traders noted talk a major trade house had put the 2007/08 Vietnam crop at 19 million bags, broadly in line with the harvest in 2006/07.
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