Coffee Prices Reflect Supply Concerns Amid Drought and Falling Inventories
On Tuesday, March arabica coffee (KCH25) closed down -0.75 (-0.18%), while March ICE robusta coffee (RMH25) ended up +40 (+0.70%).
Arabica Prices Drop After Previous Week’s Surge
Arabica coffee faced continued pressure, extending last Friday’s dramatic -4.36% dip, fueled by long liquidation following a record high in futures pricing. Maxar Technologies noted that this year’s Harmattan winds are the driest seen in six years, negatively affecting crop conditions.
Brazil’s Coffee Resilience in Early Sales
Despite the downturn in prices, there’s reason for optimism as producers in Brazil have sold 88% of the 2024/25 coffee harvest by February 11, surpassing last year’s figure of 79% and the five-year average of 82%. On the other hand, sales of the 2025/26 crop lag behind, having reached just 13% compared to the four-year average of 22%.
Concerns Mount Over Coffee Supply
Fears over supply continue, as Cecafe revealed that Brazil’s green coffee exports in January fell -1.6% year-over-year, totaling 3.98 million bags. Additionally, Brazil’s government crop forecasting agency, Conab, projected a -4.4% decline for the 2025/26 coffee crop to a three-year low of 51.81 million bags. Conab has also revised its estimate for the 2024 crop down by -1.1%, now at 54.2 million bags.
Drought Issues Affecting Coffee Growth
Brazil’s coffee crop worries are growing, particularly after Somar Meteorologia reported only 12.4 mm of rain in the country’s prime arabica growing area of Minas Gerais last week—just 20% of the historical average. This is critical as Brazil is the largest producer of arabica coffee worldwide.
Long-term Impacts of Dry Conditions
The dry El Niño conditions experienced last year may have lasting effects on coffee crops in both South and Central America. Since April of last year, Brazil has faced below-average rainfall, which is detrimental to coffee trees during the crucial flowering stage, affecting the upcoming 2025/26 arabica crop. Notably, according to Cemaden, Brazil is experiencing its driest weather conditions since 1981, while Colombia is gradually recovering from last year’s drought.
Declining Coffee Inventories Offer Support
Arabica coffee inventories tracked by the ICE have shown a downward trend, dropping from a recent high of 993,562 bags to a nine-month low of 758,514 bags. Similarly, robusta coffee inventories have fallen to a one-and-three-quarter month low of 4,297 lots.
Robusta Prices Resilient Despite Production Challenges
Robusta coffee prices are bolstered by decreased production. Vietnam’s coffee output for the 2023/24 crop year has decreased by -20% to 1.472 million metric tons, marking the lowest yield in four years. The USDA FAS projected a slight dip in Vietnam’s robusta production for the 2024/25 marketing year to 27.9 million bags.
Potential Downturn in Exports
While global coffee exports increased, presenting a bearish outlook for prices, Conab reported a remarkable +28.8% year-over-year rise in Brazil’s coffee exports to a record 50.5 million bags for 2024. Additionally, Vietnam saw its January coffee exports rise +6.3% month-over-month. However, the ICO highlighted a decrease in December’s global coffee exports of -12.4% year-over-year.
Contrasting Forecasts from the USDA
The USDA’s December 18 biannual report provided mixed signals about future coffee prices. It predicts a -6.6% drop in world coffee stocks to 20.867 million bags for the 2024/25 period. Brazil’s production estimate was also lowered, with the USDA anticipating output to be 66.4 million metric tons for 2024/25, a decrease from an earlier projection of 69.9 million metric tons.
Pessimistic Outlook for Future Crops
Looking ahead to the 2025/26 marketing year, Volcafe revised Brazil’s arabica coffee production estimate down to 34.4 million bags, reflecting a significant decline of about 11 million bags from previous projections amid a severe drought. The forecast indicates a global arabica coffee deficit of -8.5 million bags, marking the fifth consecutive year of deficits.
On the date of publication, Rich Asplund did not hold any positions in the securities mentioned. All information in this article is for informational purposes only. For more details, please see the Barchart Disclosure Policy here.
More news from Barchart
The views expressed are those of the author and do not necessarily reflect the views of Nasdaq, Inc.
