Coffee Prices Slide Amid Supply Concerns and Weather Patterns

Market Reaction to Changing Regulations and Weather Conditions

On Tuesday, December arabica coffee (KCZ24) closed down -1.00 (-0.36%), while January ICE robusta coffee (RMF25) fell by -79 (-1.67%). Overall, coffee prices experienced moderate losses.

The market faced pressure as news from Monday indicated reduced supply concerns. The Intercontinental Exchange announced a delay in planned changes to its coffee and cocoa contracts until the end of 2025. This decision stems from uncertainties regarding the European Union’s new deforestation regulations.

Earlier this week, arabica coffee surged to a 13-year nearest-futures high, with robusta hitting a one-month peak. This rise was influenced by worries over potential supply issues after the European Parliament voted to revise deforestation regulations that could affect coffee exports from countries like Brazil and Indonesia. The Deforestation Regulation measure, known as EUDR, requires companies to guarantee that products imported into the EU were not sourced from areas deforested or degraded after 2020.

Interestingly, recent rainfall in Brazil has alleviated some dryness concerns, which generally presses down prices. Somar Meteorologia reported that Brazil’s main arabica production region, Minas Gerais, received 60.9 mm of rain last week, reaching 127% of the historical average. This area is crucial as it produces the largest share of Brazil’s arabica coffee.

Despite recent rainfall, concerns linger about prolonged drought conditions damaging coffee crops in Brazil. Since April, rainfall has consistently fallen below the average, adversely affecting coffee trees at a vital growth stage. Notably, Brazil’s dry spell has reportedly been the worst since 1981, according to the natural disaster monitoring center, Cemaden.

In the robusta sector, tight supplies are supporting prices. Vietnam’s General Department of Customs reported that October coffee exports dropped by -11.6% month-over-month to 45,412 metric tons. Year-to-date, exports (Jan-Oct) decreased -11.1% year-over-year to 1.15 million metric tons. Concerns over heavy rainfall potentially flooding coffee fields in Vietnam may also delay the harvest, intensifying supply issues as Vietnam is the world’s largest robusta producer.

Robusta coffee prices continue to be affected by diminished production. The Vietnamese agriculture department noted that the 2023/24 crop year would see a -20% decline in coffee production to 1.472 million metric tons, marking the smallest crop in four years due to drought conditions. Projections from the USDA FAS indicated a slight decrease in robusta production for the 2024/25 marketing year, expecting a drop from 28 million bags to 27.9 million bags.

According to Conab, Brazil’s crop forecasting agency, on September 19, there was a downward revision in the 2024 coffee production forecast, dropping from 58.8 million bags to 54.8 million bags. This adjustment indicates a tightening supply, which typically boosts coffee prices.

However, indications of increasing global coffee supplies add downward pressure on prices. The International Coffee Organization (ICO) revealed that global coffee exports rose by +25% year-over-year in September to 10.76 million bags, with totals from October to September increasing +11.7% year-over-year to 137.27 million bags.

On the inventory front, tight coffee stocks have been somewhat favorable for prices. ICE-monitored arabica coffee inventories rose from a 24-year low of 224,066 bags in November 2023 to a 1-3/4 year high of 873,724 bags by Monday. Conversely, ICE-monitored robusta inventories hit a 6-1/2 month low of 3,854 lots last Tuesday, following an increase to a 1-3/4 year high of 6,521 lots in July. Notably, this level is still above the record low of 1,958 lots recorded in February 2024.

Data from Cecafe indicates a bearish sentiment for Brazilian coffee exports. The agency reported that Brazil’s green coffee exports in October rose by +11% year-over-year to 4.57 million bags. Additionally, a previous report indicated that Brazil’s 2023/24 coffee exports surged by +33% year-over-year to a record 47.3 million bags.

In a further bearish outlook, the ICO last month projected a +5.8% increase in global coffee production for 2023/24, reaching a record 178 million bags, attributing this rise to an exceptional off-biennial crop year. Additionally, global coffee consumption is expected to climb +2.2% year-over-year to a record 177 million bags, resulting in a surplus of 1 million bags.

The USDA’s bi-annual report on June 20 was also bearish for coffee prices. The USDA’s Foreign Agricultural Service (FAS) projected a +4.2% increase in world coffee production for 2024/25 to 176.235 million bags, with arabica production expected to rise by +4.4% to 99.855 million bags and robusta production to increase by +3.9% to 76.38 million bags. It also forecasted that ending stocks would rise by +7.7% to 25.78 million bags from 23.93 million bags in 2023/24. Furthermore, Brazil’s arabica production for 2024/25 is projected to increase by +7.3% to 48.2 million bags due to better yields and expanded planted acreage, while Colombia’s coffee production is estimated to rise by +1.6% to 12.4 million bags.

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
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