Coffee prices have increased significantly due to below-normal rainfall in Brazil, impacting crop yields. Inventory levels are shrinking, supporting price increases despite a potential rise in global coffee exports. Concerns over regional drought conditions, particularly from El Niño, and decreasing coffee production in Vietnam further underline the complexity of supply issues affecting the coffee market.
May arabica coffee prices rose by +3.04% to close at +11.75, while May ICE robusta coffee increased by +2.90%, closing up +159. These rises in coffee prices followed gains from Monday, with arabica reaching a 1.5-week high and robusta hitting a 1-week high. The ongoing below-normal rainfall in Brazil is likely to diminish coffee crop yields, further driving support for prices. Somar Meteorologia noted that the Minas Gerais region, Brazil’s primary arabica growing area, received only 11.4 mm of rain, representing just 24% of its historical average as of February 22, with further reports delayed due to the Brazilian Carnival holiday.
Coffee prices are also buoyed by shrinking inventories. As of last Friday, ICE-monitored robusta inventories fell to a two-month low of 4,247 lots, while arabica inventories dropped to a nine-month low of 758,514 bags on February 18 but increased to a two-week high of 809,128 bags the previous Thursday. Additionally, a higher proportion of Brazil’s coffee harvest has been sold compared to previous years, with Safras & Mercado reporting that producers sold 88% of the 2024/25 coffee harvest by February 11, ahead of last year’s 79% and the five-year average of 82%.
Concerns regarding supply continue to influence coffee prices. Recent figures from Cecafe indicated that Brazil’s green coffee exports in January fell by -1.6% year-over-year to 3.98 million bags. Meanwhile, Conab projected a -4.4% year-over-year decline in Brazil’s 2025/26 coffee crop to 51.81 million bags and downgraded its 2024 coffee crop estimate by -1.1% to 54.2 million bags from an initial forecast of 54.8 million bags.
Persistent dry conditions, exacerbated by last year’s El Niño, have raised concerns about longer-term damage to coffee crops in South and Central America. Brazil has been experiencing the driest weather in over four decades according to Cemaden, significantly impacting coffee bean development during critical flowering periods. Colombia, the world’s second-largest arabica coffee producer, is gradually recovering from drought conditions also caused by El Niño.
Robusta coffee prices are similarly pressured by decreased production. Vietnam’s coffee output for 2023/24 is forecasted to decline by -20% to 1.472 million metric tons, the lowest yield in four years. Projections by the USDA FAS indicate a slight change in Vietnam’s robusta coffee production for the 2024/25 marketing year, estimated at 27.9 million bags. Notably, reports indicated a 17.1% year-over-year decrease in Vietnam’s 2024 coffee exports.
While reports of increased global coffee exports typically exert bearish pressure on prices, Conab stated Brazil’s 2024 coffee exports surged +28.8% year-over-year to a new high of 50.5 million bags. Simultaneously, Vietnam’s January coffee exports saw a +6.3% month-over-month rise to 134,000 metric tons, despite a -12.4% year-over-year decline in global coffee exports reported by ICO for December.
The USDA’s December biannual report contained mixed projections for coffee prices, forecasting a +4.0% uptick in world coffee production for 2024/25 to 174.855 million bags, which includes a +1.5% rise in arabica and a +7.5% increase in robusta production. However, the USDA estimates a -6.6% drop in ending stocks to a 25-year low of 20.867 million bags for the 2024/25 season.
In summary, coffee prices have risen due to adverse weather conditions in Brazil and diminishing inventories, which may affect overall crop yields. Increased sales of the Brazilian coffee harvest and ongoing supply concerns further support pricing. Conversely, projections of improved global coffee exports present potential downward pressure on prices. Continued monitoring of weather patterns and inventory levels is essential for forecasting future trends in the coffee market.
Original Source: www.tradingview.com
