Coffee prices have increased due to dry weather in Brazil, threatening crop yields. Recent rainfall in key regions was significantly below average, contributing to rising prices. With declining inventories and faster sales of the current coffee harvest, supply concerns persist, despite potential increases in global exports. The outlook for future coffee production is complicated, particularly with predictions of reduced Brazilian yields.
The rally in coffee prices has been fueled primarily by the impact of dry weather in Brazil, which poses risks to coffee crop yields. On this particular day, May arabica coffee saw an increase of 3.71%, while May ICE robusta coffee rose by 0.66%. Reports from Somar Meteorologia indicate that insufficient rainfall during this critical period may adversely affect the final stages of coffee crop development ahead of the May harvest.
Recent meteorological assessments revealed that Brazil’s leading arabica-growing region, Minas Gerais, received only 24% of its historical average rainfall during the week ending February 22. The delayed rain report, attributed to the Brazilian Carnival holiday, underlines Brazil’s significance as the largest global producer of arabica coffee.
A decrease in coffee inventories further supports rising prices. Recent data shows that robusta coffee stocks monitored by ICE fell to a two-month low of 4,247 lots. Meanwhile, arabica coffee inventories reached a nine-and-a-quarter month low before recovering slightly in the latest reports. Shrinking inventories indicate supply constraints within the market.
The Brazilian coffee harvest has been sold at a faster rate compared to previous years, with 88% of the 2024/25 harvest sold by February 11. This is an increase from the previous year’s 79% and the five-year average of 82%. Conversely, sales for the 2025/26 crop have been slower than expected, reflecting limitations in available supply.
Ongoing supply concerns, exacerbated by reduced exports and production forecasts, have propelled coffee prices. In January, Brazil’s green coffee exports experienced a year-on-year decline, and the government agency Conab projected significant reductions in both the 2024 and 2025/26 coffee crop estimates.
El Niño-related dry conditions have inflicted long-term damage on coffee crops in both South and Central America. Rainfall deficiencies have been persistent, affecting the flowering stage of coffee trees and diminishing prospects for future harvests. Brazil is experiencing its most severe drought since 1981, which has also influenced Colombia’s recovery from related drought conditions.
Robusta coffee prices are sustained by declining production in Vietnam, where forecasts indicate a significant drop due to drought conditions. Additionally, projected coffee exports from Vietnam for the upcoming marketing year suggest a downturn in supply. However, contrasting trends from Brazil indicate a potential increase in global coffee exports, which could exert bearish pressure on prices.
Mixed signals were documented in a recent USDA report, which predicted a modest increase in global coffee production, coupled with rising ending stocks reaching a 25-year low. This poses a complex landscape for future pricing trends, particularly regarding Brazil’s coffee production estimates for 2025/26, which were significantly downgraded following extended drought observations.
In summary, the current rally in coffee prices is primarily influenced by Brazil’s ongoing drought conditions that threaten crop yields and decrease inventories. The combination of accelerated sales of the current harvest, slow sales of the next, and forecasts of reduced production have created a tense market atmosphere. Despite prospects of increased global coffee exports, the overall supply outlook remains precarious, contributing to an optimistic trading environment for coffee prices.
Original Source: www.tradingview.com
