Dak Lak's harvest, which accounts for about a third of the nation's harvest, may rise to 400,000 metric tonnes, according to Nguyen Van Sinh, deputy director of the local agricultural department. October Coffee, Cocoa Co. expects the share of top- grade beans to gain to 45 percent from 35 percent this harvest, Mai Ky Van, export and business division head, said on September 30.

Higher output from the largest grower of the bitter-tasting beans used in espressos and instant drinks may extend a 25 percent slump in prices from a three-year high in March, while lowering costs for users such as Nestle SA. (NESN) The world's biggest food company buys about 250,000 tonnes a year from Vietnam, Rashid Qureshi, local unit managing director, said in August. Bean quality depends on size, flavor, moisture and handling.

"The size of the beans is a bit bigger than the last crop," said Vu Dinh Noi, head of planning and cultivation technology at Thang Loi Coffee Co., a state-owned grower with 1,800 hectares (4,448 acres). About 52 percent of the crop may be top-grade beans this harvest from 45 percent last year as output gains 10 percent to 5,000 tonnes, Noi said on September 29.

Robusta on NYSE Liffe in London has declined on speculation supplies are set to gain as a slowdown in global economic growth pares demand. The November-delivery contract traded at $2,005 per tonne at 7:05 p.m. in Singapore today after rising 1.4 percent.

Food Costs

Lower coffee prices may help to ease global food costs, which reached an all-time high in February, according to a 55- item gauge compiled by the Food & Agriculture Organisation, the Rome-based United Nations agency. Vietnam's harvest will start later this month.

Output in Vietnam, the second-largest coffee grower after Brazil, may rise to a record 1.32 million tonnes in the year from October 1 on good weather and increased planting, according to a Bloomberg survey of 12 traders, growers and exporters last month. That compares with 1.17 million tonnes last year, according to a central government report on October 3. Volcafe, the coffee unit of trader ED&F Man Holdings Ltd, and Macquarie Commodities Research have also forecast output at an all-time high.

Global Harvest

Global robusta production will increase 5.4 percent to 3.29 million tonnes (54.9 million 60-kilogram bags) in 2011-2012, the US Department of Agriculture estimates. Worldwide supply will exceed demand by almost 4.1 million bags, according to ABN Amro Bank NV and VM Group. Macquarie predicts a surplus of 2.5 million bags, the most in four years.

October Coffee expects production from its 414 hectares to gain as much as 15 percent, said Van. Six hectares of uncovered space behind October Coffee's office building in Buon Ma Thuot, the provincial capital, are ready for drying the harvest. "It's always better to dry coffee under sunlight, it helps boost the beans' quality," Van said.

Melanie Kohli, a spokesperson for Vevey, Switzerland-based Nestle, declined to comment on forecasts for the crop's quantity and quality when contacted by Bloomberg.

About 85 percent of Dak Lak's coffee is produced by smallholders, according to Tran Hieu, vice chair of the Dak Lak Provincial People's Committee. After harvesting, beans are dried in the open air, or by machine at some of the larger producers. Some farmers use wood fires if there's rain.

'Half the Equation'

To gauge quality, "I don't know if bean size is even half the equation, I think it's more how it's treated, and that very much depends on the weather," Jens Nielsen, founder of Singapore-based Oriental Coffee & Commodities Pte, said October 2.

A 1.65 trillion dong ($79.1 million) government programme introduced last year for smallholders may improve the standard of the coming harvest, according to Sinh, the deputy director at the local agricultural department. "We are providing about 40 percent of costs for farmers to build proper warehouses, drying grounds, and equipment for the drying process," Sinh said.

If rains prevent natural drying, using fires can give a smoky aroma, impairing bean quality, Nguyen Huy Dao, a trader at Buon Ma Thuot-based September 2nd Import Export Co., said September 30.

"Improper drying processes have reduced the quality of Vietnamese coffee in the past," Dao said. "If drying conditions are not good it could result in an increase of the number of black beans." Black beans are of low quality and don't meet international standards. Most are discarded.

A larger supply of higher-grade beans this year may reduce the premium paid over futures for top-quality coffee, and help meet roasters' demand for better beans, according to Enrico Antony, general manager at Liffe-nominated robusta warehouse keeper Romani & C. SpA in Trieste, Italy.

"What it affects a lot is the differential," Antony said on October 3, referring to the premium or discount paid on physical coffee compared with the futures price.

Bloomberg - October 8, 2011