Coffee Market Update: Prices Rise and Fall Amid Supply Concerns
Coffee Prices Show Mixed Signals
Friday saw December arabica coffee (KCZ24) close up +2.85 (+1.02%), while January ICE robusta coffee (RMF25) closed down -4 (-0.08%). Prices responded to a week of volatility, with arabica reaching a 13-year high on Thursday. This fluctuation in prices is tied to possible supply issues, stemming from changes to the European Parliament’s deforestation regulations. If the EU cannot finalize these changes by the upcoming deadline, regulations will be enacted that could reduce coffee supply from major producers like Brazil and Indonesia.
Weather Woes in Brazil’s Coffee Regions
Arabica coffee is also seeing price support due to forecasts of hot and dry weather in Brazil’s top coffee-growing region, Minas Gerais. Meteorologist Climatempo announced that after a brief period of rain, the next ten days are expected to be hotter and drier.
Robusta Supply Tightens
Robusta prices are bolstered by tight supplies as Vietnam’s October coffee exports dropped by 11.6% month-over-month to 45,412 metric tons. Year-to-date, exports are down 11.1% to 1.15 million metric tons. Additionally, there are concerns about heavy rain in Vietnam, risking coffee floods and delays in the harvest. Vietnam is the world’s largest producer of robusta coffee and is currently in its coffee harvest season.
Long-term Effects of Drought
Overall concerns about Brazilian drought are increasing fears of lasting crop damage. Rainfall in Brazil has been below average since April 2023, adversely affecting coffee trees at a critical flowering stage. This could lead to reduced arabica production for the 2025/26 crop year. According to the natural disaster monitoring center Cemaden, Brazil is experiencing its driest weather since 1981.
Production Estimates Drop
Further supporting prices, Brazil’s crop forecasting agency, Conab, has cut its 2024 production estimate from 58.8 million bags to 54.8 million bags.
Global Coffee Supply Surplus
On the contrary, reports from the International Coffee Organization (ICO) indicate that global coffee supplies are increasing. September expositions rose by 25% year-on-year to 10.76 million bags, while exports from October to September showed an 11.7% increase to 137.27 million bags. This data could exert downward pressure on coffee prices.
Rainfall Impacting Brazil’s Crop
Recent rainfall in Brazil may similarly hinder coffee prices. Somar Meteorologia noted that Minas Gerais received 123.9 mm of rain last week, which surpasses the historical average by 349%. This area is vital for arabica coffee production.
Shifts in Coffee Inventory
ICE-monitored arabica inventories have increased from a 24-year low of 224,066 bags in November 2023 to a 1-3/4 year high of 873,589 bags as of Thursday. In contrast, robusta coffee inventories fell to a 6-1/2 month low of 3,854 lots after peaking at a 1-3/4 year high of 6,521 lots in July.
Export Trends from Brazil
Brazil’s coffee export data appears bearish; Cecafe reported that green coffee exports for October rose by 11% year-on-year to 4.57 million bags and, according to a July report, Brazil’s total coffee exports for the 2023/24 season increased by 33% year-on-year to a record 47.3 million bags.
Production Forecasts Remain High
In a less favorable light, the ICO’s forecast indicates a 5.8% increase in global coffee production for the 2023/24 season, reaching an estimated 178 million bags. Despite this rise, global coffee consumption is also expected to climb to a record 177 million bags, resulting in a minor surplus of 1 million bags.
USDA’s Projections for Future Production
The USDA’s bi-annual report from June was also bearish. The Foreign Agriculture Service (FAS) expects world coffee production to rise by 4.2% for the 2024/25 season to 176.235 million bags. They project a 4.4% increase in arabica production and a 3.9% rise in robusta output. Importantly, the 2024/25 ending stocks are forecasted to increase by 7.7% from the previous year, highlighting strengthening inventories.
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.
