Coffee Prices Decline on Weaker Brazilian Real and Rising Supply

Arabica and Robusta Coffee Futures Experience Setbacks

March arabica coffee (KCH25) closed down -2.45 (-0.75%) on Tuesday, while January ICE robusta coffee (RMF25) fell by -14 (-0.27%).

Moderate losses in coffee prices were observed on Tuesday due to a significant drop in the Brazilian real (^USDBRL), reaching a record low against the dollar. This decline led to liquidation in coffee futures as the weaker real incentivizes Brazilian coffee exporters to sell, consequently increasing supply.

A key factor contributing to the downward trend in arabica coffee prices is the rising inventory levels. As reported, ICE-monitored arabica coffee supplies surged to a 2-1/2 year high of 949,231 bags on Tuesday. Recently, coffee prices had surged due to concerns over a reduced coffee crop in Brazil. Just last Tuesday, March arabica futures set a contract high, and the December coffee nearest-futures contract (Z24) reached a record high, boosted by Volcafe’s revised outlook for Brazil’s 2025/26 arabica coffee production, now at 34.4 million bags—approximately 11 million bags lower than previous estimates due to severe drought conditions revealed during a crop tour. Volcafe also highlighted a projected global 2025/26 arabica coffee deficit of 8.5 million bags, surpassing the 5.5 million bag deficit expected for 2024/25, marking the fifth consecutive year of shortfalls.

Adverse weather patterns in Brazil and Vietnam, major coffee-producing nations, further threaten global output. The price hike has led some Brazilian coffee exporters to reverse their hedges and purchase coffee futures to address short positions, intensifying price increases.

Brazil is facing below-average rainfall, which could negatively impact its coffee output and drive prices higher. Somar Meteorologia noted that rainfall in Minas Gerais, the largest arabica coffee-producing region in Brazil, was just 35.2 mm last week, equating to only 65% of the historical average.

Robusta coffee prices are also receiving support due to decreasing availability. ICE-monitored robusta coffee stocks fell to a 7-1/2 month low of 3,672 lots on Monday.

A decline in robusta production is emerging from Vietnam, where exports plummeted by -47% year-over-year in November to 63,019 metric tons. Cumulative exports from January to November are down -14% year-over-year to 1.22 million metric tons. Recent heavy rains in Vietnam have flooded coffee farms and postponed the robusta coffee harvest, impacting the world’s largest producer.

The lingering effects of the dry El Niño weather earlier this year are expected to have lasting impacts on coffee crops in South and Central America. Consistently below-average rainfall since April in Brazil has damaged coffee trees at a critical flowering stage, further straining projections for the 2025/26 arabica coffee crop. Brazil is experiencing its driest conditions since 1981, according to the natural disaster monitoring center, Cemaden. Meanwhile, Colombia, the second-largest arabica producer, is slowly recovering from drought linked to El Niño.

Despite these concerns, uncertainty regarding the full extent of damage to Brazil’s coffee crops has led to mixed outlooks. Coffee trader Neuman Gruppe GmbH indicated that Brazil’s 2025/26 arabica output might reach around 40 million bags, which exceeds Volcafe’s forecast of 34.4 million bags from last week, describing it as “too early” to make accurate projections.

Robusta prices are also bolstered by diminished production numbers. In Vietnam, robusta output for the 2023/24 crop year fell by -20% to 1.472 million metric tons, marking the smallest crop in four years. The USDA Foreign Agricultural Service (FAS) projected a slight decrease in robusta production for the 2024/25 marketing year, forecasting 27.9 million bags down from 28 million. However, the Vietnam Coffee and Cocoa Association recently increased its 2024/25 production estimate to 28 million bags from an earlier estimate of 27 million bags.

Moreover, coffee prices enjoy some support from forecasts made on November 22 by the USDA’s FAS, which projected Brazil’s 2024/25 production at 66.4 million metric tons—below earlier expectations of 69.9 million bags. The FAS also expects Brazil’s coffee stocks at the end of 2024/25 to total 1.2 million bags, a -26% year-over-year decline.

On the other hand, signs of increased global coffee stocks are creating bearish pressure. The International Coffee Organization (ICO) reported a 15.1% year-over-year rise in global coffee exports for October to 11.13 million bags, with total exports for the 2023/24 season (October to September) rising by 11.7% to 137.27 million bags.

Data from Cecafe revealed bearish trends, showing Brazil’s green coffee exports rose by +2.7% year-over-year to 4.29 million bags. Furthermore, coffee exports for Brazil during 2023/24 surged by 33% year-over-year, hitting a record 47.3 million bags.

The ICO also projected that global coffee production for 2023/24 would increase by +5.8% year-over-year, reaching a record 178 million bags, thanks to a strong off-biennial crop year. With consumption rising by +2.2% year-over-year to a record 177 million bags, a surplus of 1 million bags is anticipated.

In its bi-annual report published on June 20, the USDA’s FAS presented a bearish outlook. It estimated that world coffee production for 2024/25 would increase by +4.2% year-over-year to 176.235 million bags, including a +4.4% rise in arabica production to 99.855 million bags and a +3.9% increase in robusta production to 76.38 million bags. The USDA’s FAS also forecasts that ending stocks for 2024/25 will rise by +7.7% to 25.78 million bags, up from 23.93 million bags in the previous year.

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