Indonesian Coffee Premium Seen Rising as London Futures Decline

Buyers of coffee from Indonesia, the world’s third-biggest robusta grower, are paying a bigger premium for their beans as futures traded in London dropped and local prices remained firm, according to Volcafe Ltd.

Indonesian coffee for May and June shipments was at a premium of $90 a metric ton to the price on the NYSE Liffe exchange, the Winterthur, Switzerland-based unit of commodities trader ED&F Man Holdings Ltd. said in a report e-mailed today. That compares with a premium of $80 a ton a week earlier.

While robusta coffee futures in London plunged 5.6 percent over the past week to $1,975 a ton, local prices were little changed. Indonesian beans were trading at 19,000 rupiah ($1.95) to 20,300 rupiah a kilogram (2.2 pounds), Volcafe said. That compares with 19,300 rupiah to 20,500 rupiah a kilogram a week earlier.

“Offering differentials for nearby shipments have tightened,” Volcafe said, referring to a discount or a premium paid to obtain physical coffee in relation to the price on the futures market. “Prices on the ground remain firm.”

Indonesia has started to harvest its 2013-14 crop and production is set to climb to 11 million bags, according to Andrea Thompson, head of research and analysis at CoffeeNetwork, a unit of broker INTL FCStone Inc. That’s up from 10 million bags a year earlier. A bag of coffee weighs 132 pounds.

Coffee bean deliveries from farms in Indonesia rose to 2,400 tons to 2,600 tons this week, up from 2,100 tons to 2,250 tons a week earlier, according to Volcafe. Harvesting still has to start in the highland areas, according to the trader.

In Vietnam, the world’s largest robusta producer, sales from farms “came to a standstill” as futures declined, according to the report. Vietnamese beans for May and June shipments were at a premium of $90 a ton to the exchange price, up from a premium of $70 a ton last week.

“There is steady trade and industry demand in the market, but business was very limited as a result of very firm differentials,” it said.

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