Coffee prices saw significant increases on Monday, driven by concerns regarding Brazil’s coffee crop yields due to below-average rainfall. Current supply limitations and a high percentage of the existing harvest sold further elevated prices. Despite a record rise in Brazilian coffee exports, the market experiences mixed signals amid decreasing global production forecasts exacerbated by drought conditions.
On Monday, coffee prices surged significantly due to concerns regarding Brazil’s coffee crop yields amid below-normal rainfall. Specifically, May arabica coffee (KCK25) increased by 3.65%, closing up +13.60, while May ICE robusta coffee (RMK25) rose by 2.93%, closing up +156. Somar Meteorologia revealed that the Minas Gerais region, Brazil’s leading arabica coffee area, recorded only 11.4 mm of rain between February 22, representing just 24% of the historical average.
A drop in coffee supplies has also contributed to higher prices. As of last Friday, ICE-monitored robusta coffee inventories fell to a two-month low of 4,247 lots. Furthermore, ICE-monitored arabica coffee stocks decreased to a nine-and-a-quarter-month low of 758,514 bags on February 18, although they recovered recently to 809,128 bags.
Positive news for prices includes a higher percentage of Brazil’s coffee harvest already sold compared to previous years. As of February 11, producers sold 88% of the 2024/25 harvest, exceeding last year’s figure of 79% and the five-year average of 82%. Conversely, sales of the 2025/26 crop remain sluggish, with only 13% sold, well below the four-year average of 22%.
Concerns about supply persist, as reported by Cecafe on February 12, which indicated a year-over-year decline of 1.6% in Brazil’s January green coffee exports, totaling 3.98 million bags. Additionally, Brazil’s government crop forecaster, Conab, projected a 4.4% yearly decline in the 2025/26 coffee crop to 51.81 million bags, further contributing to the supply fears.
The impact of last year’s El Nino-induced dry conditions is anticipated to lead to long-term crop damage in South and Central America. Brazil has faced its driest weather since 1981, negatively affecting coffee trees during the critical flowering stage and reducing projections for the 2025/26 arabica crop. Likewise, Colombia, the second-largest arabica producer, is gradually recovering from last year’s drought.
Robusta coffee prices are supported by decreased production due to drought in Vietnam, with 2023/24 yields falling by 20% to 1.472 million metric tons, the smallest harvest in four years. The USDA has projected a slight dip in Vietnam’s robusta production for the 2024/25 marketing year. In contrast, Vietnam’s coffee exports declined by 17.1% year-over-year in 2024.
Despite efforts to bolster exports, there is a bearish outlook for prices. Brazil’s 2024 coffee exports reached a record 50.5 million bags, marking a 28.8% year-over-year increase. Nevertheless, the International Coffee Organization reported a 12.4% yearly decline in global coffee exports in December, emphasizing the mixed market signals.
The USDA’s biannual report released on December 18 yielded mixed implications for coffee prices, projecting a world coffee production increase of 4% year-on-year for 2024/25, rising to approximately 174.855 million bags. However, Brazilian coffee production estimates were adjusted downward, indicating potential concerns about supply.
Forecasts for the 2025/26 marketing year have also been cut, with Volcafe reducing its estimate for Brazil’s arabica production to 34.4 million bags due to prolonged drought effects. This adjustment implies a global arabica coffee deficit wider than previous years at an estimated 8.5 million bags, marking the fifth consecutive year of supply deficits.
In summary, coffee prices are rising sharply due to concerns over Brazil’s crop yields caused by insufficient rainfall and adverse weather conditions. Inventory declines and elevated sales percentages of the current harvest enhance these pressures. Despite mixed signals in export volumes, reduced global coffee production expectations and the long-term impacts of droughts contribute to an increasingly volatile market.
Original Source: www.tradingview.com
