Coffee Prices Surge Amid Concerns of Drought and Low Production
March arabica coffee (KCH25) closed Monday up +2.70 (+0.89%), while January ICE robusta coffee (RMF25) rose +125 (+2.51%).
On Monday, coffee prices continued their impressive three-week rally. March arabica reached a contract high, and December arabica hit a 27-year nearest-futures high. Additionally, January robusta coffee climbed to a seven-week high.
The surge in coffee prices is largely due to worries about long-term crop damage in Brazil caused by drought conditions. Rainfall in Brazil has been below average since April, adversely affecting coffee trees during the critical flowering stage, which is vital for the country’s 2025/26 arabica coffee yield. This drought represents the driest period Brazil has faced since 1981, as reported by the natural disaster monitoring center Cemaden.
Decreased rainfall in Brazil is likely to limit the country’s coffee output, providing a support base for prices. Somar Meteorologia noted that last week, rainfall in Minas Gerais, Brazil’s primary arabica coffee region, totaled just 6 mm, which is only 10% of the historical average. Minas Gerais is vital to Brazil’s coffee production.
Last Thursday’s USDA Foreign Agricultural Service (FAS) projections added further upward pressure on coffee prices. They forecasted Brazil’s coffee production for the 2024/25 season to be 66.4 million metric tons, down from a previous estimate of 69.9 million metric tons. The FAS also anticipated Brazil’s coffee inventories to drop by 26% year-over-year to 1.2 million bags by the end of the 2024/25 season in June.
Robusta coffee prices are supported by tight supplies. Vietnam’s General Department of Customs reported a significant decline in coffee exports, with October’s figures falling 11.6% month-over-month to 45,412 metric tons and the January-October exports down 11.1% year-over-year to 1.15 million metric tons. Concerns about flooding from heavy rains in Vietnam further complicate the situation, potentially delaying the coffee harvest in the world’s largest robusta-producing country.
The reduction in robusta production has strengthened prices. Vietnam’s agriculture department revealed that coffee production for the 2023/24 crop year dropped 20% to 1.472 million metric tons, marking the smallest output in four years due to drought. Additionally, the USDA FAS projected a slight dip in robusta production to 27.9 million bags for the 2024/25 marketing year, compared to 28 million bags the previous year.
Support for coffee prices also comes from Brazil’s crop forecasting agency, Conab, which lowered its 2024 production estimate to 54.8 million bags, down from 58.8 million bags stated in May.
However, there are signs of increased global coffee supplies, which could place downward pressure on prices. The International Coffee Organization (ICO) reported a 25% year-over-year increase in global coffee exports in September, amounting to 10.76 million bags. Exports for the period from October to September rose 11.7% year-over-year, totaling 137.27 million bags.
The market is also coping with tight coffee inventories. ICE-monitored arabica coffee inventories rebounded from a 24-year low of 224,066 bags in November 2023, reaching a 2-1/3 year high of 893,325 bags last Thursday. In contrast, ICE-monitored robusta coffee inventories dropped to a 6-3/4 month low of 3,854 lots on November 12, down from a 1-3/4 year high of 6,521 lots in July, although they remain moderately above February’s record low of 1,958 lots.
Bearish news from Brazil’s coffee export sector has emerged. Cecafe reported a rise in Brazil’s October green coffee exports, which increased by 11% year-over-year to 4.57 million bags. Furthermore, data from July indicated that Brazil’s 2023/24 coffee exports surged by 33% year-over-year to a record 47.3 million bags.
Recent projections from the International Coffee Organization (ICO) indicate that global coffee production for 2023/24 is expected to increase by 5.8% year-over-year to a record 178 million bags due to an exceptional off-biennial crop year. ICO also forecasts a 2.2% year-over-year growth in global coffee consumption to reach 177 million bags, resulting in a surplus of 1 million bags.
The USDA’s bi-annual report, released on June 20, painted a bearish picture for coffee prices. The FAS anticipates that world coffee production in 2024/25 will rise 4.2% year-over-year to 176.235 million bags, including a 4.4% increase in arabica production to 99.855 million bags and a 3.9% increase in robusta production to 76.38 million bags. Ending stocks are projected to rise by 7.7% to 25.78 million bags, up from 23.93 million bags in 2023/24.
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.
