Coffee Prices Slip Amid Mixed Supply Signals and Weaker Real

March arabica coffee (KCH25) is down -6.40 (-1.92%), while January ICE robusta coffee (RMF25) declines -42 (-0.82%).

Current Market Overview

Coffee prices are lower today, largely influenced by a rally in the dollar index (DXY00) that has reached a 2-year high. This trend typically pressures commodity prices, including coffee.

Increased Supplies Weighing on Arabica and Robusta

A bearish aspect for arabica coffee is the rise in current supplies; ICE-monitored arabica inventories climbed to 965,715 bags, reaching a 2-1/2 year high as of Wednesday. Similar pressures afflict robusta coffee, which saw its inventories rise to a 4-week high of 3,912 lots after dropping to a 7-1/2 month low of 3,672 lots earlier this week.

Impact of the Brazilian Real

The Brazilian real (^USDBRL) is also impacting coffee prices negatively. It recently sank to a record low against the dollar, fueling export sales by Brazilian coffee producers and increasing supply further.

Weather Conditions in Brazil

Despite the pressure from increased supplies, coffee prices find some support from dry conditions in Brazil, the leading producer of arabica coffee. Recent reports from Somar Meteorologia indicate that the Minas Gerais region, crucial for arabica production, received only 35.2 mm of rainfall last week—65% of its historical average.

Shift in Coffee Production Outlook

Over the past two weeks, coffee prices have surged due to expectations of a smaller Brazilian harvest. Last Tuesday, March arabica reached a contract high, and the nearest Dec coffee futures contract hit a record high. Volcafe significantly lowered its 2025/26 Brazil arabica production estimate to 34.4 million bags, about 11 million bags less than previously predicted, primarily due to the extended drought conditions affecting Brazil’s crop.

USDA Report Provides Mixed Signals

The USDA’s bi-annual report, released Wednesday, presents mixed views on future coffee prices. It predicts a 4.0% increase in global coffee production for 2024/25 to 174.855 million bags, with arabica production expected to rise by 1.5% to 97.845 million bags and robusta by 7.5% to 77.01 million bags. Ending stocks are forecasted to drop by 6.6% to a 24-year low of 20.867 million bags from 22.347 million bags in 2023/24.

Robusta Coffee Supply Challenges

Status for robusta coffee remains supportive due to declining supplies in Vietnam. The Vietnam General Department of Customs reported that coffee exports plunged 47% year-over-year in November to 63,019 MT. January to November exports also fell by 14% to 1.22 MMT, influenced by heavy rains that delayed the robusta harvest.

Long-Term Effects of El Nino

The El Nino phenomenon earlier this year may have lasting negative impacts on coffee crops in South and Central America. Brazil has been facing its driest weather since 1981, which hurt coffee trees during critical flowering stages, thus reducing the potential yield for the upcoming crop year.

Projected Declines in Vietnamese Production

In Vietnam, robusta production for the 2023/24 crop year is estimated to have decreased by 20% to 1.472 MMT, marking the smallest harvest in four years. The USDA projects a slight decline in Vietnam’s robusta production for the 2024/25 marketing year, while a recent estimate from the Vietnam Coffee and Cocoa Association indicates a potential increase.

Global Coffee Export Trends

While coffee supply pressures continue, recent figures indicating larger global exports are bearish for prices. The International Coffee Organization (ICO) reported a 15.1% year-over-year increase in global coffee exports for October, totaling 11.13 million bags, while overall exports for the 2023/24 season rose 11.7% to 137.27 million bags. Brazil’s exports are also on the rise, with Cecafe recently reporting a 2.7% increase to 4.29 million bags, and total coffee exports for Brazil hitting a record 47.3 million bags.

Global Production Surges Amidst Increased Consumption

Further complicating the situation, the ICO recently announced that global coffee production for 2023/24 surged by 5.8% year-over-year to a record 178 million bags. Consumption also increased by 2.2% year-over-year, leading to a 1 million bag surplus.