Coffee Prices Drop Amidst Brazilian Real Slide
March arabica coffee (KCH25) closed down -5.00 (-1.55%) on Friday, while January ICE robusta coffee (RMF25) fell -156 (-2.80%).
Early Gains Lost as Brazilian Real Hits Record Low
On Friday, coffee prices started strong but ultimately fell as the Brazilian real (^USDBRL) dipped to an all-time low against the dollar. The weaker currency encourages Brazilian coffee producers to sell more beans abroad, leading to liquidation in coffee futures.
Record Highs for Coffee Futures Before the Decline
Despite the drop, coffee prices had been rallying for three weeks. March Arabica reached a contract high, and December Arabica achieved a 47-year nearest-futures high. Additionally, January robusta coffee hit a 2-1/2 month high as adverse weather in Brazil and Vietnam raised concerns over global coffee production. The price surge prompted some Brazilian exporters to reduce their hedging by buying coffee futures, further driving prices upwards.
Long-Term Damage from Dry Weather
El Niño’s dry weather has raised alarms about long-term damage to coffee crops in South and Central America. Since April, Brazil has seen consistently low rainfall, harming coffee trees during critical blooming periods and jeopardizing the 2025/26 arabica coffee harvest. Cemaden, Brazil’s natural disaster monitoring center, reports this is the driest period since 1981. Meanwhile, Colombia, the second-largest arabica producer, is gradually recovering from its own drought issues.
Brazil’s Coffee Production Forecasts Are Unsettled
With below-average rainfall, Brazil’s coffee output might decline, which is bullish for prices. Somar Meteorologia noted that Minas Gerais, Brazil’s top arabica-producing area, received just 6 mm of rain last week—10% of its historical average. This region’s productivity is crucial to the overall arabica yield.
Robusta Prices Supported by Production Cuts
Robusta coffee prices remain strong due to reduced production in Vietnam, where drought has caused the 2023/24 crop yield to drop by 20% to 1.472 million metric tons, the lowest in four years. The USDA FAS projected a slight decrease in Vietnam’s upcoming robusta production, forecasting 27.9 million bags for the 2024/25 season as compared to 28 million in 2023/24.
Strained Coffee Inventories Keep Prices Elevated
Tight inventory levels are also supporting coffee prices. ICE-monitored arabica coffee inventories rebounded from a 24-year low of 224,066 bags in November 2023 to a two-and-a-third year high of 903,548 bags recently. In contrast, robusta stocks fell to a seven-month low of 3,847 lots, down from a 1-3/4 year high of 6,521 lots in July 2023.
Bearish Trends in Export Depending on Brazil’s Performance
Export news from Brazil added bearish sentiment. Cecafe reported an 11% year-on-year increase in October green coffee exports, reaching 4.57 million bags. Furthermore, a historical surge of 33% for Brazil’s total coffee exports this season signals larger volumes potentially affecting prices.
Global Production Projections Show Potential Surplus
Contrary to some local outlooks, the International Coffee Organization (ICO) projected last month that global coffee production for 2023/24 could rise by 5.8% to reach a record 178 million bags due to favorable crop conditions. The ICO also anticipates a 2.2% rise in global consumption, suggesting a slight surplus of 1 million bags.
USDA Predicts Further Production Increases
A bearish report from the USDA on June 20 indicated an overall increase in world coffee production for 2024/25 by 4.2% to 176.235 million bags. This includes a 4.4% increase for arabica and a 3.9% uptick for robusta, with predicted ending stocks climbing by 7.7% from the previous 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 here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
