Coffee Prices Surge Amid Production Forecasts and Weather Concerns
Arabica and Robusta Prices Rise
March arabica coffee (KCH25) is up +3.50 (+1.21%), while January ICE robusta coffee (RMF25) has increased by +8 (+0.17%).
Today, coffee prices continued their upswing from Wednesday’s notable gains. March arabica reached a contract high, with December arabica hitting a new 13-year nearest-futures high. The surge followed the USDA’s Foreign Agricultural Service (FAS) predicting Brazil’s 2024/25 coffee production at 66.4 MMT, which is lower than the USDA’s previous estimate of 69.9 MMT. Additionally, Brazil’s coffee inventories are expected to decline to 1.2 million bags by June 2025, marking a 26% decrease from last year. However, a stronger dollar led to profit-taking and long liquidation in coffee futures, causing prices to pull back from their peaks.
Worries Over Brazilian Drought
Long-term concerns about Brazilian coffee crops are intensifying due to ongoing drought conditions. Rainfall in Brazil has been below average since April, negatively affecting coffee trees during their crucial flowering stage. This has diminished expectations for Brazil’s 2025/26 arabica coffee crop. Alarmingly, Brazil is experiencing its driest weather since 1981, according to Cemaden, the national disaster monitoring center.
Vietnam’s Export Decline
Tight supplies of robusta coffee are also boosting prices. Vietnam’s General Department of Customs recently reported a -11.6% month-over-month decline in coffee exports for October, totaling 45,412 MT. For the first ten months of the year, coffee exports fell by -11.1% year-over-year, reaching 1.15 MMT. Compounding this, heavy rains in Vietnam pose a risk of flooding coffee fields, which could delay the harvest. As the world’s largest robusta producer, Vietnam is currently at the onset of its coffee harvest.
Production Drops and Forecast Adjustments
Robusta coffee production in Vietnam is on the decline. The country’s agriculture department reported on March 26 that production for the 2023/24 crop year fell by -20% to 1.472 MMT, marking the smallest output in four years due to drought conditions. The USDA FAS projected a slight reduction in Vietnam’s robusta coffee production for the 2024/25 marketing year, dropping to 27.9 million bags from 28 million bags in 2023/24.
Encouragingly, Brazil’s Conab agency lowered its 2024 coffee production forecast to 54.8 million bags, down from 58.8 million bags previously estimated in May. Some rains in Brazil recently helped alleviate concerns about dryness, with Minas Gerais, the largest arabica-growing region, receiving 60.9 mm of rainfall last week, or 127% of its historical average.
Global Supply Trends and Inventory Adjustments
Despite positive indicators for coffee prices, signs of increased global supplies are potentially bearish. The International Coffee Organization (ICO) reported that global coffee exports rose +25% year-over-year to 10.76 million bags for September, and an increase of +11.7% year-over-year for the October to September period, totaling 137.27 million bags.
On the other hand, tight coffee inventories lend some support to prices. ICE-monitored arabica coffee inventories saw a rise from a 24-year low of 224,066 bags in November 2023, reaching a 1-3/4 year high of 879,117 bags on Tuesday. However, robusta inventories fell to a 6-1/2 month low of 3,854 lots last Tuesday, after peaking at a 1-3/4 year high of 6,521 lots in July. While these figures remain above the record low of 1,958 lots from February 2024, concerns remain.
Brazil’s export figures have also borne mixed results. Cecafe reported a rise in Brazil’s green coffee exports for October by +11% year-over-year, totaling 4.57 million bags. Moreover, Cecafe previously revealed that coffee exports for the 2023/24 period increased by +33% year-over-year, setting a new record at 47.3 million bags.
Future Production Projections
The ICO recently projected that global coffee production for 2023/24 could rise by +5.8% year-over-year to a record 178 million bags due to a favorable off-biennial crop year. Coffee consumption is also expected to increase, climbing +2.2% year-over-year to 177 million bags, which would create a surplus of 1 million bags.
Additionally, the USDA’s bi-annual report on June 20 presented a bearish outlook for coffee prices. The FAS projects world coffee production in 2024/25 to grow by +4.2% year-over-year to 176.235 million bags, driven by 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. Ending stocks are anticipated to rise +7.7% to 25.78 million bags from 23.93 million bags in 2023/24. The USDA also expects Brazil’s arabica production for 2024/25 to increase by +7.3% to 48.2 million bags, attributed to improved yields and more planted acreage. Meanwhile, Colombia’s production is projected to rise by +1.6% to 12.4 million bags.
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.
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