Coffee Prices Slide as Supply Concerns and Weather Factors Impact Markets

May arabica coffee (KCK25) has decreased by -0.90 (-0.23%) today, while May ICE robusta coffee (RMK25) is down -22 (-0.40%).

Price Declines Linked to Weather and Inventory Changes

Coffee prices are facing downward pressure, with arabica falling to a 1-1/2 week low. Somar Meteorologia has predicted widespread showers next week in Minas Gerais, Brazil’s largest arabica-producing region. This forecast alleviates concerns about dryness and contributes to falling coffee prices.

Rising Inventories and Global Supply Outlook

An increase in ICE coffee inventories is further easing supply worries, which negatively impacts prices. As of Tuesday, ICE-monitored arabica coffee inventories rose to a one-week high of 803,032 bags. Similarly, robusta coffee inventories increased to a one-month high of 4,356 lots last Friday.

Last Friday, a report from Marex Solutions added to bearish sentiment by projecting that the global coffee surplus for the 2025/26 season will widen to 1.2 million bags from +200,000 bags in the 2024/25 season. For robusta coffee, a report from Vietnam’s General Statistics Office last Thursday indicated that Vietnam’s coffee exports in February rose 6.6% year-over-year to 169,000 metric tons, underscoring the country’s position as the leading global producer of robusta beans.

Weather Conditions and Long-term Crop Concerns

A critical factor supporting coffee prices is below-average rainfall in Brazil. Somar Meteorologia reported that Minas Gerais received only 1.1 mm of rain for the week ending March 8, just 2% of its historical average. Prices also received support as the dollar index (DXY00) fell to a four-and-three-quarter month low on Tuesday.

While supply fears have kept some support for coffee prices, Cecafe reported that Brazil’s green coffee exports decreased by 1.6% year-over-year in January, amounting to 3.98 million bags. Additionally, on January 28, Brazil’s government crop forecasting agency, Conab, projected a 4.4% decline in the 2025/26 coffee crop, expecting it to hit a three-year low of 51.81 million bags. Conab also revised its 2024 estimate downward, from 54.8 million bags to 54.2 million bags.

Impact of Drought and El Niño Conditions

The ongoing drought attributed to the previous year’s El Niño phenomenon raises concerns about potential long-term damage to coffee crops in South and Central America. Brazil has experienced the driest conditions since 1981, which has significantly impacted the flowering phase of coffee trees, creating uncertainties for the 2025/26 arabica coffee crop. Meanwhile, Colombia is slowly rebounding from the drought that affected its arabica production.

Challenges for Robusta Production

Robusta prices are also facing pressure due to reduced production. The drought in Vietnam has led to a 20% decline, bringing their coffee production for the 2023/24 crop year down to 1.472 million metric tons, the lowest in four years. The USDA Foreign Agricultural Service (FAS) projected a slight dip in Vietnam’s output to 27.9 million bags for the 2024/25 marketing year. Furthermore, Vietnam’s General Statistics Office noted a 17.1% year-over-year decline in coffee exports for 2024, totaling 1.35 million metric tons.

Mixed Signals for Global Coffee Exports

Despite larger global coffee exports being a bearish sign for prices, there are mixed signals. Conab reported that Brazil’s coffee exports in 2024 increased by 28.8% year-over-year, reaching a record 50.5 million bags. However, the International Coffee Organization (ICO) stated that global coffee exports fell by 12.4% year-over-year to 10.73 million bags in December, with October to December figures also showing a decline of 0.8% year-over-year.

USDA Reports Outline Future Production Trends

The USDA’s biannual report on December 18 presented a mixed outlook for coffee prices. The FAS projected a 4.0% increase in world coffee production for 2024/25, totaling 174.855 million bags, with arabica production rising by 1.5% to 97.845 million bags and robusta production up 7.5% to 77.01 million bags. Nevertheless, ending stocks are expected to decrease by 6.6%, resulting in a 25-year low of 20.867 million bags compared to 22.347 million bags in 2023/24.

For the upcoming 2025/26 marketing year, Volcafe reduced its Brazil arabica coffee production estimate to 34.4 million bags, a significant drop due to prolonged drought conditions. They project a global arabica coffee deficit of 8.5 million bags, which is wider than the 5.5 million bag deficit for 2024/25, marking the fifth consecutive year of deficits.

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.
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