Coffee prices have recently risen due to below-normal rainfall in Brazil, affecting crop yields. A decline in coffee inventories further supports these prices, with rapid sales of the current harvest indicating limited supply. Projections highlight potential deficits in the arabica supply because of adverse weather conditions, making the coffee market increasingly volatile.
On Tuesday, coffee prices experienced notable gains, with May arabica coffee (KCK25) rising by 3.04% and robusta coffee (RMK25) increasing by 2.90%. The surge in prices is attributed to below-normal rainfall in Brazil, which may negatively impact crop yields. Following reports from Somar Meteorologia, Minas Gerais—the largest arabica-growing region—recorded only 24% of its typical rainfall, affecting coffee production during crucial blooming periods.
Additionally, declining coffee inventories have further supported price increases. ICE’s robusta coffee stocks reached a two-month low of 4,247 lots last Friday, while arabica inventories fell to a nine-and-a-quarter month low of 758,514 bags before recovering to 809,128 bags last Thursday. Moreover, producers in Brazil have sold 88% of their 2024/25 coffee harvest ahead of last year’s pace, indicating a tighter supply.
Concerns about continued supply shortages are reinforcing coffee prices amid reduced export figures. Reports indicated a year-on-year decline of 1.6% for Brazil’s January green coffee exports. Furthermore, Brazil’s government crop forecasting agency forecasted a potential 4.4% decrease in the 2025/26 coffee crop, which has raised alarms regarding coffee supply for the coming years.
The impact of El Niño-induced drought conditions is exacerbating concerns for the South and Central American coffee crop. Rainfall levels in Brazil have remained below average since April, compromising production as trees suffer during the vital flowering stage. Colombia, the second-largest arabica producer, is also gradually recovering from last year’s drought.
Robusta coffee prices are being supported by lower production levels, particularly in Vietnam, where coffee production diminished by 20% due to drought. Projections indicate slight declines in Vietnam’s robusta production for the upcoming marketing year. Additionally, coffee exports from Vietnam decreased by 17.1% compared to the previous year.
However, increasing global coffee exports present a bearish outlook for prices. Brazil experienced a record 28.8% increase in 2024 coffee exports, while Vietnam’s exports also rose by 6.3%. Global coffee exports overall fell 12.4% year-on-year in December, reflecting ongoing volatility in the coffee market. The USDA’s recent biannual report suggested mixed forecasts for coffee prices, projecting a 4% increase in world coffee production but a significant decrease in Brazil’s output estimates due to prolonged drought conditions.
Concerning the future, predictions suggest a looming deficit in arabica coffee supply, with estimates for the global 2025/26 arabica crop deficit reaching 8.5 million bags. Volcafe has lowered its estimate for Brazil’s coffee production significantly due to the persisting drought situation. This scenario indicates the potential for ongoing volatility in coffee pricing as supply continues to tighten against stable or increasing demand.
In summary, coffee prices are being significantly influenced by adverse weather conditions in Brazil, which have resulted in below-normal rainfall threatening crop yields. Diminished inventories coupled with robust sales of the current harvest further exacerbate supply concerns. The expectation of a larger global coffee production is counterbalanced by specific issues in major producing nations, contributing to a complex and dynamic market outlook.
Original Source: www.tradingview.com
