Global food producers such as Nestle SA will have to pay more for the robusta coffee beans used in snacks and drinks as a supply crunch sends premiums to multi-month highs in Asia, forcing some exporters to cancel shipments.
Farmers in Vietnam, the world's No.1 producer of robusta, are holding back their coffee, frustrated by persistently low London futures prices. In No.2 producer Indonesia, unusually wet weather during the harvesting season has made it tough for growers to dry beans.
The supply squeeze has raised fears of defaults by trading houses in Vietnam and exporters in Indonesia and it may curb exports from the two countries, which account for nearly a quarter of the world's coffee output.
"Exporters and suppliers are in a difficult position," said Moelyono Soesilo, purchasing and marketing manager at exporting firm Taman Delta Indonesia. "Some have already signed long-term contracts to sell beans at lower differentials. Farmers only sell beans in small quantities to cover daily needs."
London September robusta plunged to a 32-month low last week, tracking New York arabica futures which slumped as funds sold in the face of ample supply from Brazil.
On Wednesday, September robusta followed New York arabica higher to settle up $32 at $1,795 a ton.
Lower supplies from the two main robusta producers may stem the decline in London, blamed on Brazil. The Latin American state is the world's top coffee grower and mainly produces the aromatic arabica variety used by Starbucks Corp.