Coffee Market Update: Arabica Prices Slip Amid Supply Concerns

May arabica coffee (KCK25) closed on Thursday down -1.05 (-0.27%), while May ICE robusta coffee (RMK25) increased by +20 (+0.35%).

Market Overview

On Thursday, coffee prices displayed a mixed performance, with arabica slipping to a 1-1/2 week low. The decline in arabica prices was largely attributed to a forecast of widespread showers from Somar Meteorologia for the upcoming week in Minas Gerais, Brazil’s primary arabica-producing region. These anticipated rains have alleviated concerns regarding dryness affecting the crop. In contrast, robusta coffee prices rebounded from early drops, closing higher amid indications of tighter supplies, following a decrease in ICE-monitored robusta inventories to a 1-1/2 week low of 4,303 lots.

Factors Influencing Prices

Contributing to the negative sentiment for arabica was a report from Marex Solutions last Friday predicting that the global coffee surplus for the 2025/26 season is expected to widen significantly, escalating from +200,000 bags in the 2024/25 season to 1.2 million bags.

For robusta coffee, bearish sentiment stemmed from a report by Vietnam’s General Statistics Office indicating a +6.6% year-over-year increase in Vietnam’s coffee exports for February, totaling 169,000 metric tons, solidifying Vietnam’s status as the leading producer of robusta beans.

Supportive Weather Conditions

Conversely, prices are supported by below-normal rainfall patterns in Brazil. As noted by Somar Meteorologia, the Minas Gerais region received only 1.1 mm of rain for the week ending March 8, representing merely 2% of its historical average. Additionally, the dollar index (DXY00) decreased, reaching a 4-3/4 month low on Tuesday, which also supported coffee prices.

Supply Dynamics

Concerns regarding supply persistence have further bolstered coffee prices. The Brazilian coffee export data from Cecafe, which reported a -1.6% year-over-year drop in January green coffee exports amounting to 3.98 million bags, continues to add pressure. Moreover, the National Supply Company (Conab) forecasted on January 28 that Brazil’s coffee yield for the 2025/26 season would fall -4.4% year-over-year, hitting a three-year low at 51.81 million bags. Additionally, Conab has also adjusted its 2024 Brazilian coffee crop forecast down by -1.1% from 54.8 million bags to 54.2 million bags.

Long-Term Concerns

The drought conditions associated with last year’s El Niño are expected to have lasting impacts on coffee crops in both South and Central America. Brazil has been experiencing its driest weather in over four decades, which severely affects coffee trees during critical flowering stages, thus diminishing prospects for the 2025/26 arabica harvest. Meanwhile, Colombia, the second-largest producer of arabica coffee, is slowly recovering from the impacts of last year’s drought.

Robusta Production Outlook

In terms of robusta coffee, prices are supported by a decline in production rates. Vietnam has faced a -20% decrease in coffee production for the 2023/24 crop year, totaling 1.472 million metric tons, marking its smallest output in four years. The USDA Foreign Agricultural Service (FAS) expected a slight downturn in Vietnam’s robusta production for the upcoming 2024/25 marketing year. Their projection stands at 27.9 million bags, down from 28 million bags in the current season. Furthermore, Vietnam’s General Statistics Office reported a -17.1% year-over-year decrease in coffee exports for 2024, totaling 1.35 million metric tons.

Global Export Trends

Despite these production challenges, larger global coffee exports cast a bearish cloud over prices. The Conab report from February 4 indicated that Brazil’s coffee exports for 2024 increased significantly by +28.8% year-over-year to a record 50.5 million bags. In contrast, the International Coffee Organization (ICO) reported a -12.4% year-over-year drop in December global coffee exports, totaling 10.73 million bags.

USDA Projections

The USDA’s biannual report, released on December 18, presented a mixed outlook for coffee markets. It projected that world coffee production would grow by +4.0% year-over-year in 2024/25, reaching 174.855 million bags, with arabica increasing by +1.5% to 97.845 million bags and robusta by +7.5% to 77.01 million bags. However, ending stocks are anticipated to decrease by -6.6% to a 25-year low of 20.867 million bags compared to 22.347 million bags the preceding year.

Further insights from Volcafe on December 17 highlighted serious concerns for the 2025/26 marketing year. They have revised Brazil’s arabica production estimates down to 34.4 million bags, a loss of about 11 million bags from earlier estimates due to worsening drought conditions. Volcafe projects a global arabica coffee deficit for 2025/26 of -8.5 million bags, extending the trend of shortages into a fifth consecutive year.

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
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.