On Thursday, arabica coffee prices surged to a two-week high due to concerns over insufficient rainfall affecting Brazilian crops, while robusta coffee prices declined on increased inventories. Projections indicate potential future deficits in coffee production driven by ongoing drought conditions, impacting Brazil and Colombia. The market remains volatile, reflecting complex dynamics between supply and demand across global coffee markets.
On Thursday, May arabica coffee (KCK25) reached a two-week high, closing up by 1.10 (+0.28%), while May ICE robusta coffee (RMK25) declined by 30 (-0.548%). The mixed settlements in coffee prices were influenced by insufficient rainfall in Brazil, raising concerns about coffee crops and consequently driving prices higher. According to Somar Meteorologia, rainfall in Brazil’s leading arabica coffee-producing region, Minas Gerais, was only 30.8 mm for the week ending March 15, which is significantly below the historical average by 71%. This situation was exacerbated by Cooxupe, Brazil’s largest arabica coffee cooperative, indicating that high temperatures and below-normal rainfall last month would adversely affect coffee yields this year.
In contrast, robusta coffee prices fell after an increase in supplies, as ICE-monitored robusta coffee inventories rose to a one-and-a-half-week high of 4,336 lots. Meanwhile, arabica coffee inventories monitored by ICE decreased to a one-month low of 782,489 bags. The ongoing supply concerns continue to bolster coffee prices. Cecafe noted that Brazil’s green coffee exports in February plummeted by 12% year-over-year to 3 million bags. Furthermore, Brazil’s government crop forecasting agency, Conab, projected a 4.4% year-over-year decline in the country’s 2025/26 coffee crop, reaching a three-year low of 51.81 million bags, along with a lower estimate for the 2024 crop.
On a negative note, Marex Solutions reported expectations of a widening global coffee surplus in the 2025/26 season, expected to reach 1.2 million bags, compared to just 200,000 bags anticipated for the 2024/25 season. Additionally, robusta coffee faced bearish trends as Vietnam’s February coffee exports climbed by 6.6% year-over-year to 169,000 metric tons, maintaining its status as the leading producer of robusta beans.
The repercussions of El Nino’s dry weather last year could inflict lasting damage on coffee crops in South and Central America. Brazil has faced below-average rainfall consistently since April, impacting coffee trees during the crucial flowering phase and diminishing prospects for the upcoming 2025/26 arabica coffee crop. The natural disaster monitoring center Cemaden noted that Brazil is currently experiencing its driest weather since 1981. Colombia, another significant arabica producer, is gradually recuperating from drought conditions caused by El Nino.
Robusta coffee prices find support from reduced production. Drought conditions resulted in Vietnam’s coffee output for the 2023/24 crop year declining by 20% to 1.472 million metric tons, marking the smallest crop yield in four years. Additionally, the USDA Foreign Agricultural Service forecasts a modest decrease in robusta production for the 2024/25 marketing year to 27.9 million bags, down from 28 million bags previously.
Meanwhile, news of larger global coffee exports presents bearish trends for prices. According to Conab, Brazil’s exports for 2024 rose sharply by 28.8% year-over-year to 50.5 million bags. However, the International Coffee Organization reported a significant decline in global exports in December, falling by 12.4% year-over-year to 10.73 million bags.
The USDA’s biannual report released on December 18 projected mixed coffee price trends, with a forecast that world coffee production will rise by 4.0% year-over-year. This includes an increase of 1.5% in arabica production and a notable 7.5% rise in robusta production. However, the USDA also expects that ending stocks for the 2024/25 season will decrease significantly to a 25-year low. Separate estimates indicated a reduction in Brazil’s coffee production and inventories, with significant impacts anticipated for the project years ahead.
Volcafe has revised its projections for Brazil’s arabica coffee production for the 2025/26 marketing year down to 34.4 million bags, significantly lower than previous estimates, as drought conditions have persisted. They anticipate a global arabica coffee deficit of 8.5 million bags for this year, widening from the 2024/25 estimates and continuing the trend of consecutive deficits.
On the date of publication, Rich Asplund did not have direct or indirect positions in any of the securities discussed in this article. All information is provided solely for informational purposes, as stated in the Barchart Disclosure Policy.
In summary, coffee prices are being influenced by a combination of factors, including adverse weather conditions impacting Brazil’s arabica coffee yields and fluctuating global supply dynamics. While arabica prices have surged to a two-week high amid crop concerns, robusta prices have suffered due to increased supply and competition. The fiscal outlook remains fraught with challenges as projections indicate future deficits in global coffee production. The ongoing dry weather conditions and rising export numbers further complicate the landscape for coffee prices in both the short and long term.
Original Source: www.nasdaq.com
