Arabica Coffee Prices Hit New Heights Amid Supply Concerns

March arabica coffee (KCH25) finished Friday up +4.45 (+1.19%), while March ICE robusta coffee (RMH25) closed down -16 (-0.28%).

Mixed Coffee Prices: Arabica Rising, Robusta Dropping

Friday saw mixed results in coffee prices. Arabica surged to an all-time nearest-futures high, fueled by worries over global coffee supply. Brazil’s government crop forecasting agency, Conab, announced on Tuesday that it expects the country’s 2025/26 coffee harvest to decline by -4.4% year-on-year, reaching a three-year low of 51.81 million bags. Additionally, Conab reduced its 2024 Brazil coffee crop estimate by -1.1% to 54.2 million bags, down from its previous estimate of 54.8 million bags made in September.

Market Volatility and Weather Woes

Despite the gains, coffee prices pulled back, particularly robusta, which fell from a recent record high. This decline coincided with a rally in the dollar index (DXY00) hitting a one-week peak, leading to some long liquidation in coffee futures. In Brazil, significantly below-average rainfall is compounding concerns. According to Somar Meteorologia, Brazil’s largest arabica-growing region, Minas Gerais, received only 26.5 mm of rain last week, just 53% of the historical norm.

The Long-term Impact of El Niño

The dry weather linked to last year’s El Niño may pose lasting harm to coffee farms in South and Central America. Rain in Brazil has persistently fallen below average since April of last year, damaging coffee trees during the critical flowering period and jeopardizing the 2025/26 arabica crop. Cemaden, a natural disaster monitoring center, reports that Brazil is experiencing its driest weather since 1981. Meanwhile, Colombia is gradually recovering from drought conditions that were exacerbated by El Niño.

Supply Concerns Drive Prices

The ongoing fears of limited coffee supplies are propelling prices upward and encouraging fund accumulation of coffee. Volcafe recently downgraded its forecast for Brazil’s 2025/26 arabica coffee production to 34.4 million bags, marking an approximate 11 million bag decrease from its previous estimate. Volcafe also anticipates a global arabica coffee deficit of -8.5 million bags in 2025/26, expanding from the -5.5 million bag deficit projected for 2024/25, which would mark the fifth consecutive year of deficits.

Robusta Coffee Production Trends

Robusta prices are also being supported by reduced output. Vietnam’s robusta production for the 2023/24 crop year has fallen by -20% to 1.472 MMT, the lowest output in four years. The USDA’s Foreign Agriculture Service (FAS) had projected that Vietnam’s robusta coffee production in the upcoming 2024/25 marketing year would slightly decline to 27.9 million bags from 28 million bags. Furthermore, as of January 10, Vietnam’s coffee exports were reported to have dipped -17.1% year-on-year to 1.35 MMT, although the Vietnam Coffee and Cocoa Association raised its 2024/25 production estimate to 28 million bags from 27 million bags estimated in October.

Inventory Updates and Global Exports

In a bearish twist, increased robusta inventories have contributed to downward pressure on prices. As of last Friday, ICE-monitored robusta coffee stocks reached a 3¾ month high of 4,603 lots. On the other hand, ICE-monitored arabica coffee inventories rose to a 2½ year high of 993,562 bags on January 6 but have since decreased to a 2½ month low of 867,582 bags.

Global Production and Consumption Trends

News of rising global coffee exports also adds to bearish sentiments. Conab reported on Tuesday that Brazil’s 2024 coffee exports spiked by +28.8% year-on-year to a record 50.5 million bags. Additionally, the International Coffee Organization (ICO) noted that global coffee production climbed by +5.8% year-on-year to a record 178 million bags due to an exceptionally strong off-biennial crop. Despite the increase in production, global coffee consumption rose by +2.2% to a record 177 million bags, resulting in a slight surplus of 1 million bags.

USDA Outlook – Mixed Signals for Coffee Prices

The USDA’s biannual report released on December 18 presented a mixed outlook for coffee prices. The FAS projected a +4.0% increase in world coffee production for 2024/25 to 174.855 million bags. This includes a +1.5% rise in arabica production to 97.845 million bags and a +7.5% increase in robusta production to 77.01 million bags. However, they also forecast a -6.6% drop in 2024/25 ending stocks, which would reach a 25-year low of 20.867 million bags, down from 22.347 million bags in 2023/24. Furthermore, they indicated a reduced production estimate for Brazil in 2024/25 of 66.4 MMT, lower than the previous forecast of 69.9 MMT, anticipating Brazil’s coffee inventories to decline by -26% year-on-year by the end of the 2024/25 season in June.

On the date of publication, Rich Asplund did not hold positions in any of the securities mentioned in this article. All information and data contained herein are intended for informational purposes only. For further details, please view the Barchart Disclosure Policy here.

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