Coffee Prices Decline as Supply Increases and Drought Concerns Ease
March arabica coffee (KCH25) closed down -1.25 (-0.39%) on Tuesday, while March ICE robusta coffee (RMH25) fell -46 (-0.93%).
Recent Price Trends and Weather Impact
Coffee prices dropped further on Tuesday, following a decline seen the previous day. Both arabica and robusta reached their lowest levels in three and a half weeks. The downturn in prices comes amid recent rains in Brazil, which have alleviated drought fears. According to Somar Meteorologia, the Minas Gerais region, Brazil’s leading arabica producing area, received 102.8 mm of rain last week—182% of the historical average.
Rising Inventories Weigh on Prices
Increasing coffee supplies are contributing to the downward pressure on prices. On Monday, arabica coffee stocks monitored by ICE reached a two-and-a-half-year high of 991,080 bags. Meanwhile, robusta coffee inventories increased to a two-and-a-half-month high of 4,355 lots on Tuesday.
Impact of the Brazilian Real
The Brazilian real (^USDBRL) remains weak against the dollar, which negatively impacts coffee prices. Just above its recent record low from December 18, the weak currency encourages Brazilian coffee producers to sell more on export markets.
Earlier Price Rally Due to Crop Predictions
This month, coffee prices had surged due to expectations of a reduced coffee crop in Brazil. March arabica reached a contract high, and the most immediate coffee futures contract (Z24) hit a record peak. Similarly, robusta coffee prices rose to a five-week high after Volcafe revised its 2025/26 Brazilian arabica coffee production forecast down to 34.4 million bags—a significant 11 million bags cut from its September estimate. This downward revision followed observations of severe drought conditions during crop tours, leading to a projected global arabica coffee deficit of 8.5 million bags for the 2025/26 season.
Consultancy Insights into Brazilian Crop Estimates
On December 20, consultancy group Safras & Mercado also lowered its estimate for the 2025/26 Brazilian coffee crop to 62.45 million bags, reflecting a 5% annual decrease. They project arabica production will decline by 15% to 38.35 million bags due to drought conditions, alongside robusta production expectations at 24.1 million bags.
USDA Forecast Mixed for Coffee Markets
The USDA’s biannual report released on December 18 presented a varied outlook for coffee prices. Their Foreign Agriculture Service (FAS) forecasted a 4% annual increase in world coffee production for 2024/25 to reach 174.855 million bags. They predict a 1.5% rise in arabica production to 97.845 million bags and a 7.5% surge in robusta production to 77.01 million bags. However, the USDA’s FAS also noted a significant reduction in ending stocks for 2024/25, dropping by 6.6% to a 24-year low of 20.867 million bags.
Production Challenges in Vietnam
Robusta coffee prices are also supported by decreased production in Vietnam. The Vietnam General Department of Customs reported that coffee exports in November plummeted by 47% compared to the previous year, totaling 63,019 MT. Furthermore, exports from January to November are down 14% year-on-year at 1.22 MMT, mainly due to recent floods affecting the harvest.
Long-Term Effects of Weather Patterns
The lingering effects of dry El Niño conditions earlier this year could have lasting impacts on coffee crops in South and Central America. Rainfall in Brazil has been below average since April, which has harmed coffee trees during critical flowering stages, leading to diminished prospects for the 2025/26 arabica crop. Brazil is facing its driest weather since 1981, according to Cemaden, a national disaster monitoring center. Colombia, the second-largest arabica producer, is gradually recovering from drought conditions caused by El Niño.
Reduction in Vietnamese Coffee Production
Drought conditions contributed to a 20% drop in Vietnam’s coffee production for the 2023/24 crop year, totaling 1.472 MMT—its smallest yield in four years. The USDA FAS projected a slight decrease in Vietnam’s robusta coffee production for the 2024/25 marketing year to 27.9 million bags. Conversely, the Vietnam Coffee and Cocoa Association raised its 2024/25 production estimate to 28 million bags from an earlier forecast of 27 million bags.
Increased Global Coffee Exports
Recent reports of surging global coffee exports are also bearish for prices. The International Coffee Organization (ICO) noted a 15.1% year-on-year increase in global coffee exports for October, totaling 11.13 million bags at the start of the 2024/25 season. Overall global coffee exports for 2023/24 rose by 11.7% year-on-year to 137.27 million bags. Furthermore, Cecafe reported that Brazil’s green coffee exports increased by 2.7% year-on-year to 4.29 million bags, with the country’s 2023/24 coffee exports hitting a record high of 47.3 million bags, up 33% from the previous year.
Global Production and Consumption Trends
In a further bearish sign, the ICO indicated that global coffee production for 2023/24 surged by 5.8% year-on-year to reach a record 178 million bags, attributed to an exceptional off-biennial crop year. At the same time, global coffee consumption rose by 2.2% year-on-year to an all-time high of 177 million bags, resulting in a surplus of 1 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 here.
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