Coffee Prices Dip as Rain Sparks Concerns and Supply Outlook Shifts

December arabica coffee (KCZ24) is down -2.55 (-0.90%), while January ICE robusta coffee (RMF25) has fallen -73 (-1.53%).

Morning Gains Fade as Rainfall in Brazil Impacts Price Movement

Today, coffee prices retraced from earlier gains and are trending lower. Arabica coffee dropped from a 13-year nearest-futures peak, while robusta coffee pulled back from a one-month high. The cause? Increased rainfall forecasts in Brazil prompted traders to liquidate their positions. According to Somar Meteorologia, Brazil’s largest arabica coffee region, Minas Gerais, received 60.9 mm of rain last week, exceeding the historical average by 127%.

Regulatory Changes in the EU Add Pressure on Coffee Contracts

The Intercontinental Exchange announced a delay in planned modifications to its coffee and cocoa contracts, now scheduled for late 2025 due to uncertainties surrounding new European Union deforestation regulations. Last week, coffee prices surged amid worries about supply disruptions following the EU Parliament’s decision to revise its deforestation regulations. These rules prohibit products linked to deforestation occurring after 2020 from entering the EU market.

Future Crop Damage Worries Amid Drought Conditions

Long-term concerns about coffee crops remain as Brazil’s drought continues to impact production. Rainfall has been below average since April, harming coffee trees during their crucial flowering period and jeopardizing the 2025/26 arabica crop. Reports indicate that Brazil is experiencing its driest weather in over 40 years, according to Cemaden, a natural disaster monitoring organization.

Robusta Coffee Faces Tight Supplies and Weather Concerns

Robusta coffee prices are supported by tight supply chains. Vietnam’s General Department of Customs reported that October coffee exports fell 11.6% month-over-month to 45,412 metric tons, contributing to an 11.1% year-over-year drop to 1.15 million metric tons from January to October. Heavy rain in Vietnam could flood coffee fields and lead to delays in harvesting as the country begins its coffee picking season. Vietnam is the world’s leading producer of robusta coffee.

Production Cuts and Rainfall Impact Vietnamese Coffee Output

Vietnam’s coffee production for the 2023/24 crop year is projected to decline by 20% to 1.472 million metric tons, marking the smallest harvest in four years due to drought conditions. Furthermore, the USDA Foreign Agricultural Service anticipates a slight dip in Vietnam’s robusta coffee output for the upcoming 2024/25 marketing year, projecting a drop to 27.9 million bags from 28 million bags for 2023/24.

Brazil’s Production Estimates Adjusted Downward

Brazil’s crop forecasting agency, Conab, reduced its coffee production estimate for 2024 from 58.8 million bags to 54.8 million bags, indicating a tightening in expectations.

Global Coffee Supply Figures Potentially Affecting Prices

The International Coffee Organization (ICO) reported on November 8 that global coffee exports rose by 25% year-on-year to 10.76 million bags in September. Exports accumulated from October to September also showed an increase of 11.7% year-on-year to 137.27 million bags, which may exert bearish pressure on prices.

Inventory Levels Provide Mixed Signals

While tight coffee inventories support prices, recent trends show that ICE-monitored arabica inventories have recovered from a 24-year low of 224,066 bags to 873,589 bags, a 1.75-year high. Conversely, robusta inventories recently fell to a six-and-a-half-month low of 3,854 lots.

Brazil’s Export Trajectory and Future Outlook

Brazilian export numbers indicate a bearish scenario for prices. Cecafe reported that Brazil’s green coffee exports in October surged by 11% year-on-year to 4.57 million bags. Earlier, it noted that Brazil’s total coffee exports for the 2023/24 season had reached a record 47.3 million bags, gaining 33% compared to the previous year.

Production Projections Point to Potential Surplus

The ICO’s projections last month suggested that global coffee production for 2023/24 would rise by 5.8% year-on-year to a new record of 178 million bags, attributing this jump to an exceptional off-biennial crop year. In contrast, global coffee consumption is expected to increase by 2.2% to a record 177 million bags, potentially leading to a surplus of 1 million bags.

USDA Report Echoes Future Growth in Coffee Production

The USDA’s bi-annual report issued on June 20 underscored growth in coffee production. The organization estimates that global coffee output in 2024/25 will rise by 4.2% year-on-year to 176.235 million bags, including a forecasted increase of 4.4% in arabica production and 3.9% in robusta production. This report anticipates that Brazil’s arabica coffee production will reach 48.2 million bags, a 7.3% year-on-year increase, driven by improved yields and expansion in planted areas.

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.

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