Coffee Prices Fluctuate Amid Supply Concerns and Weather Challenges

Arabica Coffee Dips as Robust Supply and Demand Imbalances Shape Market Strategies

March arabica coffee (KCH25) closed down -1.75 (-0.54%) on Friday, while January ICE robusta coffee (RMF25) managed to rise +15 (+0.29%).

On Friday, coffee prices ended the day mixed. Arabica coffee surrendered its early gains and fell after the dollar index surged to a 2-1/2 week high. In contrast, robusta prices climbed due to indications of tighter supplies, as ICE-monitored robusta coffee inventories dropped to a 7-1/2 month low of 3,674 lots.

The increase in arabica coffee supplies contributed to its bearish outlook; inventories were reported at a 2-1/2 year high of 940,426 bags. Earlier this week, coffee prices surged significantly, largely driven by predictions of a reduced Brazilian coffee harvest. Notably, on Tuesday, March arabica reached a contract high, while December’s nearest-futures contract (Z24) achieved a record high as well. The forecast for a smaller harvest prompted this surge, especially after Volcafe reduced its estimate for Brazil’s 2025/26 arabica production to 34.4 million bags—down approximately 11 million bags from its September estimate—due to severe drought impacts identified during a crop tour.

The momentum in coffee prices was challenged on Wednesday when a coffee trader, Neuman Gruppe GmbH, suggested Brazil’s 2025/26 arabica crop could reach 40 million bags, significantly surpassing Volcafe’s forecast. Neuman emphasized that it is still “too early” to make an accurate assessment of next year’s coffee crop.

Robusta coffee remains supported by declining supplies from Vietnam. The Vietnam General Department of Customs reported a steep -47% year-on-year drop in November coffee exports to 63,019 MT. Coffee exports in the January to November period also saw a decline of -14% year-on-year to 1.22 MMT. Adverse weather conditions, resulting in field flooding, have delayed the robusta harvest in Vietnam, the leading producer of this coffee type.

Global coffee prices are soaring as unfavorable weather in Brazil and Vietnam, which are the primary coffee growers worldwide, poses a threat to production levels. Sucden Financial noted that this price surge has led many Brazilian exporters to adjust their hedging strategies, further driving up coffee prices due to increased futures buying.

The earlier effects of the dry El Niño this year continue to pose risks for coffee crops in South and Central America. Brazil has experienced below-average rainfall since April, significantly impacting coffee trees during their crucial flowering stage. Cemaden, a natural disaster monitoring center, confirmed that Brazil is undergoing its driest weather since 1981. Meanwhile, Colombia, the second-largest arabica producer, is still in recovery mode from drought conditions triggered by El Niño earlier this year.

The rainfall deficit in Brazil is likely to hinder coffee production, creating upward pressure on prices. According to Somar Meteorologia, rainfall in Minas Gerais, Brazil’s key arabica coffee region, was only 91% of the expected average, with just 60.9 mm falling last week.

Robusta coffee prices are also influenced by reduced output. Vietnam’s robusta production for the 2023/24 crop year is set to decline by -20% to 1.472 MMT, marking the lowest yield in four years. The USDA FAS projected a slight decrease in Vietnam’s robusta production for the next marketing year to 27.9 million bags from 28 million bags this year. Conversely, the Vietnam Coffee and Cocoa Association recently raised its 2024/25 production estimate to 28 million bags.

Support for coffee prices stemmed from the USDA’s Foreign Agricultural Service projection on November 22, estimating Brazil’s 2024/25 coffee production at 66.4 MMT, down from an earlier forecast of 69.9 MMT. The same report predicted Brazil’s coffee inventories would decrease by -26% year on year to 1.2 million bags by the end of the 2024/25 season in June.

Nevertheless, the outlook for global coffee supplies appears bearish. The International Coffee Organization (ICO) reported a 15.1% year-on-year increase in global coffee exports for October, totaling 11.13 million bags for the start of the 2024/25 season. Overall, global coffee exports from October 2023 to September 2024 are up 11.7% year-on-year, reaching 137.27 million bags.

Additional bearish factors emerged from Cecafe’s report indicating that Brazil’s green coffee exports rose +2.7% year-on-year to 4.29 million bags. Furthermore, the country’s coffee exports for the 2023/24 season soared +33% year-on-year, breaking records at 47.3 million bags.

In a bearish note, the ICO recently projected that global coffee production for the 2023/24 season could climb +5.8% year-on-year to reach a record 178 million bags, fueled by an exceptional off-biennial crop year. The ICO also foresees a +2.2% increase in global coffee consumption to a record 177 million bags, leading to a 1 million bag surplus.

Additionally, the USDA’s biannual report released on June 20 indicated a bleak forecast for coffee prices. It anticipated a +4.2% rise in world coffee production for 2024/25 to 176.235 million bags, with arabica and robusta production also expected to increase by +4.4% and +3.9% respectively. Ending stocks are projected to rise +7.7% to 25.78 million bags, up from 23.93 million bags in 2023/24.

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

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