Coffee Prices Rise Amid Drought and Supply Concerns

On Tuesday, coffee prices surged, with May arabica coffee (KCK25) closing up +9.75 (+2.54%) and May ICE robusta coffee (RMK25) rising +177 (+3.29%). This uptick was primarily driven by below-average rainfall in Brazil.

According to Somar Meteorologia, Brazil’s Minas Gerais, the largest arabica coffee-growing region, received only 1.1 mm of rain for the week ending March 8, representing just 2% of the historical average. In addition, coffee prices found further support as the dollar index (DXY00) dropped to a four-and-a-half month low on Tuesday.

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Inventory Trends and Global Surplus Forecasts

While prices increased, a recovery in coffee inventories poses a challenge for the market. On Tuesday, ICE-monitored arabica coffee stocks rose to a one-week high of 803,032 bags. Similarly, robusta coffee inventories reached a one-month high of 4,356 lots as of last Friday.

Price pressures also stem from a report issued by Marex Solutions last Friday, indicating a projected global coffee surplus for the 2025/26 season, which is expected to widen to 1.2 million bags, up from a surplus of 200,000 bags anticipated for the 2024/25 season.

For robusta coffee, bearish signals emerged from Vietnam’s General Statistics Office, which reported a 6.6% year-over-year increase in February coffee exports to 169,000 metric tons. Vietnam is the leading producer of robusta beans.

Supply Concerns Persist

Despite the pressure from rising inventories, continued concerns about coffee supply have maintained upward pressure on prices. Cecafe noted on February 12 that Brazil’s green coffee exports in January fell by 1.6% year-over-year to 3.98 million bags. Additionally, Brazil’s government crop forecasting agency, Conab, lowered its 2025/26 coffee crop estimate by 4.4% year-over-year to a 3-year low of 51.81 million bags and also revised down its 2024 crop estimate by 1.1% to 54.2 million bags from an earlier forecast of 54.8 million bags.

The effects of last year’s dry El Nino conditions may lead to longer-term damage to coffee crops in South and Central America. Rainfall in Brazil has been below average since April, disrupting coffee tree flowering and damaging prospects for the upcoming arabica harvest. Brazil is experiencing its driest weather since 1981, according to Cemaden, the national disaster monitoring center. Furthermore, Colombia, the second-largest arabica producer, is gradually recovering from drought conditions exacerbated by El Nino.

Production Challenges in Vietnam

Robusta coffee prices are supported by declining production in Vietnam. A drought has decreased Vietnam’s coffee production for the 2023/24 crop year by 20% to 1.472 million metric tons, marking the region’s smallest crop in four years. The USDA Foreign Agricultural Service (FAS) projected a slight decline in robusta production for the 2024/25 marketing year, estimating a dip to 27.9 million bags from 28 million bags in 2023/24. However, the Vietnam Coffee and Cocoa Association recently adjusted its 2024/25 production estimate upward to 28 million bags from an earlier projection of 27 million bags.

News for larger global coffee exports can also have a negative impact on prices. Conab reported a substantial 28.8% year-over-year increase in Brazil’s coffee exports for 2024, reaching a record 50.5 million bags. In contrast, the International Coffee Organization (ICO) noted a 12.4% year-over-year decline in December global coffee exports to 10.73 million bags, and a 0.8% decrease in global exports for the October-December period compared to the previous year, totaling 32.25 million bags.

USDA Projections and Future Deficits

The USDA’s biannual report, published on December 18, presented mixed signals for coffee prices. It projected a 4.0% year-over-year increase in global coffee production for 2024/25 to 174.855 million bags, with arabica production rising by 1.5% to 97.845 million bags and robusta by 7.5% to 77.01 million bags. However, the USDA also forecast that ending stocks for 2024/25 will decline by 6.6% to a 25-year low of 20.867 million bags, down from 22.347 million bags in 2023/24. Additionally, projections for Brazil’s 2024/25 coffee production were reduced to 66.4 million metric tons, lower than the previous estimate of 69.9 million metric tons, with coffee inventories expected to fall by 26% year-over-year, reaching 1.2 million bags by the end of 2024/25.

For the 2025/26 marketing year, Volcafe’s revised estimates on December 17 cut Brazil’s arabica coffee production projection to 34.4 million bags, a reduction of around 11 million bags from September’s forecast due to an observed extended drought. Volcafe also anticipates a global arabica coffee deficit of 8.5 million bags, which represents an increase from the previous deficit of 5.5 million bags projected for 2024/25, marking the fifth consecutive year with deficits.

On the date of publication,
Rich Asplund
did not hold positions in any of the securities mentioned in this article. The information presented is for informational purposes only. Please review the Barchart Disclosure Policy
here.

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