Coffee prices are rising as dry conditions persist in Brazil, affecting arabica coffee yields, while a strengthening Brazilian real supports market prices. Recent forecasts suggest increased global production for 2024/25 but revised estimates indicate lower production levels in Brazil due to drought impacts. Consequently, deficits are anticipated in the coffee market for several upcoming years.
Coffee prices are experiencing an uptick due to dry conditions in Brazil and the strengthening of the Brazilian real. As of today, May arabica coffee (KCK25) is up 2.05% to $7.75, while May ICE robusta coffee (RMK25) sees a gain of 1.89%, increasing by $1.02. Reports indicate that the Minas Gerais region, Brazil’s largest arabica coffee area, received only 30.8 mm of rain in the week ending March 15, which is 71% of the historical average.
The Brazilian real’s strength is contributing to the upward trend in coffee prices. Projections indicate that global coffee production for 2024/25 will rise by 4.0% year-over-year to 174.855 million bags, with arabica production increasing by 1.5% to 97.845 million bags and robusta production by 7.5% to 77.01 million bags. Furthermore, the USDA’s FAS forecasts a reduction in ending stock levels to a 25-year low of 20.867 million bags for 2024/25, down from 22.347 million bags in the previous year.
In a separate analysis, the USDA’s FAS, as of November 22, lowered its Brazil coffee production forecast for 2024/25 to 66.4 million metric tons, down from 69.9 million metric tons previously cited. Projections for coffee inventories have also declined, with an expected 1.2 million bags remaining at the end of the 2024/25 season in June, representing a 26% decrease year-over-year.
Looking forward to the 2025/26 marketing year, Volcafe has revised its Brazil arabica coffee production estimate down to 34.4 million bags, reflecting a drop of approximately 11 million bags since September. This adjustment follows a crop tour that confirmed the seriousness of the ongoing drought conditions in Brazil. Consequently, a global arabica coffee deficit of 8.5 million bags is anticipated for 2025/26, surpassing the previous year’s deficit of 5.5 million bags, marking the fifth consecutive year of deficits.
In summary, coffee prices are rising due to adverse weather conditions in Brazil and a strong Brazilian real. With projections indicating increased coffee production globally for 2024/25 and significant declines in Brazil’s coffee inventories and production estimates, the outlook remains cautious. The ongoing drought poses significant risks for traders and producers, as evidenced by Volcafe’s lowered production estimates and anticipated deficits for the coming years.
Original Source: www.tradingview.com
