Coffee Prices Surge Amid Drought Concerns and Lower Production Forecasts

Arabica and Robusta Coffee Experience Significant Gains

March arabica coffee (KCH25) closed up +6.40 (+2.16%) on Friday, while January ICE robusta coffee (RMF25) rose +198 (+4.14%).

On Friday, coffee prices continued their impressive three-week climb, with March arabica reaching a contract high and December arabica attaining a 13-year nearest-futures high. In parallel, January robusta coffee hit a 1-1/2 month peak.

The rally in coffee prices is partly due to a recent USDA report. The Foreign Agricultural Service (FAS) projected Brazil’s coffee production for the 2024/25 season at 66.4 million metric tons (MMT), down from the previous estimate of 69.9 MMT. Additionally, Brazil’s coffee inventories are expected to fall to 1.2 million bags by the end of the 2024/25 season in June, which is a 26% decrease year-over-year.

Concerns about potential long-term crop damage in Brazil, resulting from ongoing drought conditions, have also bolstered coffee prices. Rainfall has been consistently lower than average in Brazil since April, jeopardizing the flowering phase of coffee plants and reducing expected yields for the 2025/26 arabica crop. Brazil is currently facing its driest weather in over 40 years, according to Cemaden, a natural disaster monitoring agency.

Support for robusta prices is linked to tight supply levels. Vietnam’s General Department of Customs reported an 11.6% drop in coffee exports for October compared to the previous month, totaling 45,412 metric tons. Year-to-date coffee exports from Vietnam also declined by 11.1%, reaching 1.15 million metric tons.

The falling output of robusta coffee is contributing to price increases. Vietnam’s agriculture department indicated that coffee production for the 2023/24 season decreased by 20% to 1.472 MMT, marking its lowest level in four years due to drought conditions. Projections for the 2024/25 marketing year suggest a slight decline in production to 27.9 million bags, down from 28 million bags.

Brazil’s crop forecasting agency, Conab, also reduced its 2024 coffee production forecast to 54.8 million bags, a drop from 58.8 million bags previously estimated in May.

Recent rainfall in Brazil has brought a temporary reprieve from dryness fears. On Monday, Somar Meteorologia reported that Minas Gerais, Brazil’s top arabica-producing region, received 60.9 mm of rain last week—127% of the historical average.

However, global coffee supply trends could pose challenges for prices. The International Coffee Organization (ICO) reported on November 8 that global coffee exports rose by 25% year-over-year in September to 10.76 million bags, while combined exports from October to September increased by 11.7% to 137.27 million bags.

Tight inventories continue to support coffee prices. ICE-monitored arabica inventories, which had dropped to a 24-year low of 224,066 bags in November 2023, have since risen to a 2-1/3 year high of 893,325 bags. Conversely, ICE-monitored robusta inventories fell to a 6-1/2 month low of 3,854 lots last Tuesday after reaching a 1-3/4 year high of 6,521 lots in July.

Bearish news from Brazilian coffee exports has emerged. Cecafe reported last Monday that Brazil’s green coffee exports for October increased by 11% year-over-year to 4.57 million bags. Furthermore, Cecafe announced on July 11 that Brazil’s coffee exports for the 2023/24 season soared by 33% year-over-year to a record 47.3 million bags.

The ICO previously projected that global coffee production for the 2023/24 season will rise by 5.8% year-over-year to a record 178 million bags due to an exceptionally productive off-biennial crop year. They also forecast that consumption will increase by 2.2% year-over-year to reach a record 177 million bags, resulting in a surplus of 1 million bags.

The USDA’s bi-annual report released on June 20 was also unfavorable for coffee prices. The FAS estimated a 4.2% increase in world coffee production for 2024/25, expecting a total of 176.235 million bags, with arabica production rising by 4.4% to 99.855 million bags and robusta production increasing by 3.9% to 76.38 million bags. The report predicts that ending stocks for the 2024/25 season will increase by 7.7% to 25.78 million bags, compared to 23.93 million bags in 2023/24.

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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy
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