Coffee prices declined on Friday following rain forecasts for Brazil, easing dry conditions. robusta coffee faces pressure from increased exports in Vietnam. Inventory levels present mixed signals, while concerns about supply persist amidst global dynamics and production prospects. The USDA report reflected a complex outlook for future coffee markets.
On Friday, coffee prices experienced a decline, with May arabica coffee closing at $2.75 lower (-0.71%) and May ICE robusta coffee down by $74 (-1.36%). This follow-up loss continued from Thursday as forecasts from Somar Meteorologia anticipated rain in Brazil after a period of dry and hot weather, thus alleviating drought conditions.
Pressure on robusta coffee prices resulted from Vietnam’s General Statistics Office reporting a 6.6% year-on-year increase in February coffee exports to 169,000 metric tons. Concurrently, rain forecasts for Vietnam’s Central Highlands are expected to contribute positively to the coffee crop, further impacting the robusta market where Vietnam stands as the largest producer of robusta coffee beans.
Coffee inventories have seen fluctuations, with ICE monitoring indicating that robusta coffee inventories reached a one-month high of 4,356 lots. In contrast, arabica coffee inventories have slightly improved from a nine-and-a-quarter month low, rising to a two-week high of 809,128 bags as of Thursday night.
Brazil’s significant arabica region, Minas Gerais, reported receiving 11.4 mm of rainfall, representing only 24% of the typical historical average. This report’s delay due to the Brazilian Carnival holiday emphasizes the importance of timely weather updates in forecasting coffee production.
A bullish aspect for coffee prices is that a greater proportion of Brazil’s 2024/25 coffee harvest has already been sold, with 88% sold by February 11, compared to last year’s 79%, demonstrating increased market activity. However, slower sales of the 2025/26 crop indicate a reluctance among producers to release more supply.
Ongoing concerns regarding supply have bolstered coffee prices, highlighted by a report indicating a 1.6% year-on-year decline in Brazil’s January green coffee exports. Moreover, recent forecasts from Conab predict reductions in Brazil’s coffee crop due to weather conditions exacerbated by El Nino effects.
The long-term impact of last year’s dry El Nino weather poses risks for coffee crops in South and Central America, potentially stunting growth during crucial flowering periods. In Brazil, dry conditions have persisted since April 2021, contributing to reduced expectations for outputs.
Vietnam has also faced challenges with coffee production, experiencing a 20% decrease for the 2023/24 crop year. Projections from the USDA indicate a slight decline in Vietnam’s robusta coffee production for the upcoming marketing year, despite some variations in previous estimates.
Conversely, larger global coffee exports have exerted bearish pressure on market prices. While Brazil is projected to see record coffee exports for 2024, the International Coffee Organization reported a decline in global exports during the latter part of the previous year, contributing to fluctuations in market dynamics.
The USDA’s biannual report revealed mixed predictions for coffee pricing, forecasting an overall production increase alongside anticipated declines in ending stocks. These projections suggest possible tightness in coffee supply, while other organizations exhibit concerns about current and future crop metrics in Brazil and worldwide.
Volcafe has adjusted its forecasts regarding Brazil’s arabica coffee production, now estimating significant reductions for the 2025/26 harvest due to prolonged drought conditions. Reports highlight an expected deficit prevailing through consecutive marketing years, indicating ongoing instability in global coffee supply.
In summary, coffee prices have recently faced moderate losses due to favorable rain forecasts in Brazil and a rise in coffee inventories. Despite some bullish factors stemming from decreased production expectations and higher proportions of harvest sales, ongoing supply concerns and international export dynamics continue to influence market fluctuations. The impact of adverse weather and reduced output in key coffee-producing countries warrants close observation for future pricing trends.
Original Source: www.tradingview.com