Coffee Prices Surge Amid Supply Concerns: A Closer Look
Arabica and Robusta Coffee Close Higher
December arabica coffee (KCZ24) Monday closed up +10.00 (+3.97%), while November ICE robusta coffee (RMX24) rose by +141 (+2.92%).
Weather Woes Shake Brazil’s Coffee Production
On Monday, coffee prices saw a significant increase, with arabica coffee reaching a 1-1/2 week high and robusta climbing to a 1-week high. Concerns over extreme dryness in Brazil may limit coffee yields, pushing prices higher. Rainfall in Brazil has been consistently below average since April, harming coffee trees during their crucial flowering stage and threatening Brazil’s 2025/26 arabica coffee crop. According to Somar Meteorologia, Brazil’s Minas Gerais region received 33.4 mm of rain over the past week, which is 99% of the historical average. This area produces about 30% of Brazil’s arabica coffee.
Low Inventory Levels Keep Coffee Prices Stable
The tightening of coffee inventories is helping prevent a larger drop in prices. As of October 3, ICE-monitored arabica coffee inventories hit a 4-1/4 month low of 795,874 bags, while robusta inventories fell to a 4-3/4 month low of 4,191 lots last Friday. Earlier, arabica stocks had increased to a 1-1/2 year high of 858,474 bags on September 12, rebounding from a 24-year low of 224,066 bags in November 2023. Additionally, robusta stocks peaked at a 1-year high of 6,521 lots on July 25, recovering from a record low of 1,958 lots in February 2024.
Contrasting Export Trends Affect Market Sentiment
However, a recent International Coffee Organization (ICO) report presented a negative outlook, indicating that global coffee exports rose by +6.5% year-over-year in August to 10.92 million bags. For the period from October to August, global exports increased by +9.9% year-over-year to 125.67 million bags.
Brazil’s Coffee Exports Show Signs of Growth
Last Wednesday, Cecafe reported that Brazil’s green coffee exports in September rose by +34% year-over-year to 4.1 million bags. This increase aligns with a broader trend of rising exports. Earlier, Cecafe mentioned on July 11 that Brazil’s 2023/24 coffee exports surged by +33% year-over-year, reaching a record 47.3 million bags.
Historical Context of Dry Weather’s Impact
On September 26, December arabica coffee hit a 13-year nearest-futures high, and November robusta reached a contract high, influenced by adverse weather in major coffee-producing countries. A report from the natural disaster monitoring center Cemaden indicated Brazil is experiencing its driest weather since 1981.
Concerns in Vietnam Also Affect Robusta Prices
Robusta coffee prices are similarly pressured by worries that excessive dryness in Vietnam will hurt coffee crops. Vietnam’s agriculture department reported on March 26 that coffee production for the 2023/24 crop year fell by -20% to 1.472 million metric tons, the smallest output in the past four years due to drought. The USDA’s Foreign Agriculture Service projected on May 31 that Vietnam’s robusta production would slightly decline to 27.9 million bags in the new 2024/25 marketing year.
Brazil’s Crop Forecasts Influencing Market
Adding to the support for coffee prices, Brazil’s national crop forecasting agency, Conab, revised its 2024 coffee production estimate down to 54.8 million bags from a previous forecast of 58.8 million bags made in May.
Global Production and Consumption Trends
On the other hand, the ICO’s May 3 report indicated that global coffee production for the 2023/24 season climbed +5.8% year-over-year to 178 million bags, attributed to a strong off-biennial crop year. Global consumption also saw a rise, increasing by +2.2% year-over-year to 177 million bags, leading to a slight surplus of 1 million bags.
Projected Increases in Coffee Production
The USDA’s bi-annual report on June 20 presented a bearish outlook for coffee prices, projecting world coffee production to increase by +4.2% year-over-year in 2024/25, reaching 176.235 million bags. Arabica production is forecasted to rise by +4.4% to 99.855 million bags, while robusta production is expected to increase by +3.9% to 76.38 million bags. The USDA also anticipates that Brazil’s 2024/25 arabica output will grow by +7.3% year-over-year to 48.2 million bags, thanks to improved yields and expanded planted acreage. Additionally, Colombia’s 2024/25 production, the second-largest arabica producer, is expected to rise by +1.6% to 12.4 million bags.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
