Rising Coffee Prices Driven by Drought Fears in Brazil and Vietnam
A Concern for Coffee Production
December arabica coffee (KCZ24) has seen an increase of +3.65 (+1.48%) today, while January ICE robusta coffee (RMF25) is up +47 (+1.09%). This uptick in prices is primarily attributed to worries about unusually dry weather in Brazil, which is expected to negatively impact the nation’s coffee output. According to Somar Meteorologia, the largest arabica coffee growing region, Minas Gerais, received only 27.4 mm of rain last week, which is just 64% of the historical average.
Long-Term Crop Damage and Drought Statistics
Support for coffee prices is bolstered by fears of sustained damage to coffee crops caused by ongoing drought conditions in Brazil. Rainfall has been significantly below average since April, harming coffee trees during their critical flowering period. This decline reduces the potential yield for Brazil’s 2025/26 arabica coffee crop. Notably, Brazil is experiencing its driest weather since 1981, as reported by the natural disaster monitoring center Cemaden.
Concerns in Vietnam Affect Robusta Prices
Robusta coffee prices are also under pressure due to similar drought worries in Vietnam. The nation’s agriculture department announced on March 26 that coffee production for the 2023/24 crop year has fallen by -20% to 1.472 million metric tons, marking the smallest output in four years. Projections from the USDA Foreign Agricultural Service on May 31 suggested a slight decrease in Vietnam’s robusta coffee production for the upcoming marketing year of 2024/25, estimating it at 27.9 million bags, down from 28 million bags in 2023/24. Furthermore, statistics from the General Department of Vietnam Customs on October 9 revealed that September coffee exports plummeted -32.6% month-over-month, totaling 51,369 metric tons. Year-to-date exports from January to September are down -11.7% year-over-year at 1.1 million metric tons.
Reduction in Brazil’s Coffee Production Forecast
Brazil’s crop forecasting agency, Conab, has joined the trend of reduced forecasts by lowering its 2024 coffee production estimate from 58.8 million bags in May to 54.8 million bags as of September 19. This adjustment reflects ongoing challenges in the coffee sector.
Inventory Trends Reflecting Market Conditions
Current tightness in coffee inventories is providing further support for prices. Earlier this year, ICE-monitored arabica coffee inventories rebounded from a 24-year low of 224,066 bags in November 2023 to a one-and-a-half-year high of 861,590 bags as of Monday. In contrast, ICE-supervised robusta coffee inventories dropped to a six-month low of 3,904 lots, having previously climbed to a record high of 6,521 lots in July. Although these robusta inventories are moderately above the record low of 1,958 lots set in February 2024, they indicate a shrinking supply chain.
Mixed Signals from Export Data
In terms of export dynamics, the International Coffee Organization (ICO) indicated on October 7 that global coffee exports increased by +6.5% year-over-year in August, totaling 10.92 million bags, with total exports from October to August rising +9.9% to reach 125.67 million bags. On the bearish side, Cecafe reported on October 9 that Brazil’s green coffee exports in September surged +34% year-over-year to 4.1 million bags, and overall exports for the 2023/24 fiscal year climbed +33% year-over-year to a record 47.3 million bags.
Future Projections for Coffee Production
The ICO further reported on May 3 that for the 2023/24 period, global coffee production surged by +5.8% year-over-year to 178 million bags, attributed to an exceptional off-biennial crop year. Consumption also rose, by +2.2% to 177 million bags, balancing out to a surplus of one million bags. On June 20, the USDA’s biannual report projected global coffee production for 2024/25 would increase by +4.2% to approximately 176.235 million bags, with arabica production expected to rise by +4.4% and robusta by +3.9%. Additionally, Brazil’s 2024/25 arabica production is anticipated to rise +7.3% to 48.2 million bags.
For further updates on the coffee market, stay tuned to the latest reports.
On the date of publication, Rich Asplund did not hold any direct or indirect positions in the securities mentioned.
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The views and opinions expressed herein are strictly those of the author and may not reflect those of Nasdaq, Inc.
