Coffee prices are rising due to decreased rainfall in Brazil and dollar weakness, with arabica up 1.59% and robusta up 3.18%. Brazilian inventories are returning to higher levels, which might negatively affect prices, despite forecasts of global surpluses. Vietnam’s rising exports add bearish pressure on robusta coffee, while long-term drought effects in Brazil continue to threaten coffee crops.
Currently, coffee prices are experiencing an increase due to below-normal rainfall in Brazil. Specifically, May arabica coffee (KCK25) has risen by 1.59%, while May ICE robusta coffee (RMK25) has increased by 3.18%. The reported rainfall in Brazil’s prominent arabica coffee-growing area, Minas Gerais, was only 1.1 mm, representing a mere 2% of its historical average. Additionally, a decline in the dollar index has contributed to this rise in coffee prices.
Despite the uptick in prices, a recovery in coffee inventories poses potential downward pressure. As of Monday, ICE-monitored arabica coffee inventories reached a one-week high of 799,406 bags, while robusta coffee inventories hit a one-month high of 4,356 lots recently. Furthermore, projections made by Marex Solutions suggest that the global coffee surplus may widen significantly in the upcoming 2025/26 season, indicating more challenges ahead for prices.
Vietnam has reported a 6.6% increase in coffee exports during February, which weighs negatively on robusta coffee prices. As the leading producer of robusta beans, Vietnam’s growing export numbers are a significant factor in global market dynamics. Simultaneously, concerns persist regarding supply due to reductions in Brazil’s exports and agricultural forecasts predicting a decrease in coffee production in the coming years.
The impact of prolonged dry conditions last year linked to El Niño poses additional risks to coffee crops across South and Central America. Rainfall deficits have adversely affected coffee trees, particularly during the critical flowering stage of development, potentially diminishing Brazil’s arabica coffee crop for 2025/26.
Robusta coffee prices remain supported by diminished production. During the 2023/24 crop year, Vietnam’s coffee production saw a notable decline of 20%, marking the country’s lowest yield in four years. The USDA projects a slight decrease in robusta production for the upcoming 2024/25 marketing year as well, indicating challenges in maintaining robusta supply amidst increasing exporter pressures.
Conversely, findings suggesting a surge in global coffee exports could negatively impact prices. Reports indicate that Brazil’s coffee exports reached a record high of 50.5 million bags in 2024, while global coffee exports saw a reduction during the last quarter of 2023. The USDA’s mixed report on coffee production indicates growth potential, despite declining ending stocks expected for the upcoming season.
Volcafe’s updated projections signal further reductions in Brazil’s arabica production forecast for the 2025/26 marketing year, amid severe drought conditions. The organization anticipates a global deficit in arabica production for the 2025/26 season, compounding ongoing supply issues and potential impacts on market stability.
In conclusion, the current upward trend in coffee prices is driven primarily by adverse weather conditions in Brazil and a weakening dollar. However, rising inventories, increasing export numbers from Vietnam, and forecasts of expanding global coffee surpluses present challenges that could impact future pricing. Navigating these market complexities will be crucial for stakeholders in the coffee industry.
Original Source: www.tradingview.com
