Coffee Prices Decline Amid Supply Increases and Dollar Strength
Arabica and robusta coffee prices fell on Thursday, influenced by rising inventories and a strong dollar. March arabica coffee (KCH25) closed down -8.90 (-2.68%), while January ICE robusta coffee (RMF25) closed down -90 (-1.75%).
Global Coffee Supplies on the Rise
Coffee prices have retreated, with robusta coffee hitting a 1-1/2 week low. The dollar index (DXY00) surged to a 2-year high on Thursday, negatively affecting most commodity prices, including coffee.
A significant factor influencing arabica coffee prices is the increase in current supplies. ICE-monitored arabica coffee inventories rose to a 2-1/2 year high of 981,565 bags as of Thursday. Additionally, robusta coffee is facing pressure as ICE-monitored inventories increased to a 4-week high of 3,912 lots on Wednesday, after reaching a 7-1/2 month low of 3,672 lots on Monday.
Brazil’s Currency and Weather Impact Prices
The weakened Brazilian real (^USDBRL) also exerts downward pressure on coffee prices. This currency has recently set a record low against the dollar, encouraging Brazilian coffee producers to increase exports and thus boost supplies.
Despite these pressures, coffee prices are receiving some support from dry conditions in Brazil, the largest producer of arabica coffee. Somar Meteorologia reported that the rainfall received in Minas Gerais, Brazil’s primary arabica coffee region, was only 35.2 mm last week, significantly below the historical average of 65%.
Market Reactions to Crop Estimates
Over the past two weeks, coffee prices rallied sharply, largely due to expectations of a smaller Brazilian coffee crop. Last Tuesday, March arabica reached a contract high, while December coffee futures (Z24) set a record high. The surge in prices was fueled by Volcafe’s recent downgrade of its 2025/26 Brazil arabica coffee production estimate to 34.4 million bags, an 11 million bag reduction from a previous forecast due to the ongoing drought. Volcafe anticipates a global arabica coffee deficit of 8.5 million bags for 2025/26, widening from the expected 5.5 million bag deficit for 2024/25.
USDA Report Offers Mixed Signals
The USDA’s bi-annual report released on Wednesday provided mixed projections for coffee prices. The USDA’s Foreign Agriculture Service (FAS) forecasts a world coffee production increase of +4.0% year-on-year for 2024/25, totaling 174.855 million bags. Within that, arabica production is expected to rise by +1.5% to 97.845 million bags, while robusta production is projected to expand by +7.5% to 77.01 million bags. However, the same report indicates that 2024/25 ending stocks will fall by -6.6%, reaching a 24-year low of 20.867 million bags.
Vietnam’s Production and Weather Challenges
Robusta coffee is also experiencing support from diminished supplies in Vietnam, where the General Department of Customs reported a -47% year-on-year decline in November coffee exports to 63,019 MT. From January to November, Vietnam’s coffee exports are -14% lower than last year at 1.22 MMT. Recent heavy rains in Vietnam have flooded coffee fields and delayed the robusta harvest.
Long-Term Effects of El Niño
The effects of dry El Niño weather patterns earlier this year may have prolonged impacts on coffee crops in South and Central America. Brazil has faced below-average rainfall since April, adversely affecting coffee plants during crucial growing stages. Reports indicate Brazil is experiencing its driest weather since 1981. Furthermore, Colombia, the second-largest arabica coffee producer, is gradually recovering from drought conditions exacerbated by El Niño.
Despite Challenges, Global Exports Increase
Robusta coffee prices are being underpinned by reduced production levels. In the 2023/24 crop year, Vietnam’s production slipped by -20% to 1.472 MMT, marking its lowest yield in four years. Although the USDA previously projected a slight decline for 2024/25 robusta production, the Vietnam Coffee and Cocoa Association recently raised its estimate to 28 million bags.
On a bearish note, the International Coffee Organization reported an increase in global coffee exports. For October of the 2024/25 season, exports rose +15.1% year-on-year to 11.13 million bags, while global 2023/24 exports climbed +11.7% to 137.27 million bags. Additionally, Brazil’s Cecafe reported that green coffee exports increased +2.7% to 4.29 million bags, with an overall export jump of +33% for the 2023/24 period, reaching a record 47.3 million bags.
In summary, even as global coffee production has increased +5.8% to a record 178 million bags due to an off-biennial crop year, global consumption has also risen +2.2%, leading to a slight surplus. This complex interplay of factors continues to shape the coffee market.
On the date of publication, Rich Asplund did not hold positions in any of the securities mentioned in this article. All information and data in this article are presented for informational purposes. For more information, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
