Coffee Prices Dip Amid Economic Pressures and Supply Concerns
March arabica coffee (KCH25) today is down -4.60 (-1.41%), and January ICE robusta coffee (RMF25) is down -37 (-0.71%).
Brazil’s Currency Weakens Coffee Futures
Coffee prices are slightly lower today as the Brazilian real (^USDBRL) fell to a record low against the dollar. This drop led to long liquidation in coffee futures. With a weaker real, Brazil’s coffee producers are encouraged to sell more coffee for export, which increases supply.
Recent Price Surges and Crop Projections
Over the past two weeks, coffee prices surged due to expectations of a smaller Brazilian coffee harvest. Last Tuesday, March arabica futures reached a contract high, while the December coffee futures (Z24) also set a record high. The robusta variety even climbed to a two-week peak. These price increases come after Volcafe reduced its 2025/26 estimate for Brazil’s arabica coffee production to 34.4 million bags, down approximately 11 million from previous forecasts. This revision stemmed from a crop tour revealing severe drought conditions affecting Brazil’s coffee-growing regions. Additionally, Volcafe anticipates a global deficit of 8.5 million bags in the 2025/26 arabica crop, continuing a trend of deficits for five consecutive years.
Weather Challenges Persist
Adverse weather is raising concerns for coffee production in Brazil and Vietnam, the world’s largest coffee producers. According to Sucden Financial, the recent price surge prompted some coffee exporters in Brazil to adjust their positions by unwinding hedges and purchasing futures, further pushing prices higher.
Rainfall Shortages in Brazil
Insufficient rainfall in Brazil is likely to diminish coffee output, which is beneficial for pricing. Somar Meteorologia reported that Minas Gerais, Brazil’s leading arabica coffee region, received only 35.2 mm of rain last week, just 65% of the historical average.
Robusta Coffee Supplies Tighten
Robusta coffee prices are also supported by tightening inventories. ICE-monitored robusta coffee stocks fell to a 7.5-month low of 3,672 lots as of Monday. Vietnam, the top robusta producer, reported a staggering 47% year-over-year drop in November exports. Factors contributing to this decline include heavy flooding and delays in harvesting.
Long-Term Weather Impacts
The effects of dry El Niño weather may inflict longer-term damage on coffee crops in South and Central America. Rainfall in Brazil has consistently fallen below average since April, impacting the flowering stage of coffee plants, which is crucial for the upcoming 2025/26 arabica harvest. The country is experiencing its driest weather since 1981, as noted by the natural disaster monitoring center, Cemaden. Meanwhile, Colombia, the second-largest arabica producer, is only beginning to recover from drought conditions linked to El Niño earlier this year.
Increased Coffee Supplies Risk
A potential bearish factor for arabica prices is the increase in current supplies. ICE-monitored arabica coffee inventories reached a 2.5-year high of 940,426 bags last Friday. Uncertainty concerning the extent of crop damage in Brazil is limiting further price rises. Traders have voiced differing beliefs about the 2025/26 harvest, with some asserting it could reach 40 million bags, surpassing Volcafe’s estimate of 34.4 million.
Robusta Production Decline
Reduced robusta production in Vietnam adds another layer of complexity. Drought conditions affected the 2023/24 crop year, reducing production to 1.472 million metric tons, the lowest in four years. The USDA projects further slight declines in robusta production for the 2024/25 marketing year.
Global Coffee Supply and Demand Trends
In more bearish developments, the International Coffee Organization (ICO) reported an uptick in global coffee exports, which rose 15.1% year-over-year in October, indicating potential oversupply. For the 2023/24 season, global exports increased by 11.7%, totaling 137.27 million bags.
Brazilian Export Growth
Brazil’s coffee export numbers brought bearish news. According to Cecafe, Brazil’s green coffee exports increased by 2.7% year-over-year, reaching 4.29 million bags. Furthermore, the 2023/24 exports surged by 33% year-over-year to a record 47.3 million bags.
Future Projections
Looking ahead, the ICO projects that global production for the 2023/24 season will rise by 5.8% to reach approximately 178 million bags, thanks to an exceptional off-year crop. However, global consumption is also expected to increase, leading to a small surplus of 1 million bags.
In the USDA’s bi-annual report, it was projected that world coffee production in 2024/25 will increase by 4.2% year-over-year, reaching 176.235 million bags. This includes a 4.4% rise in arabica and a 3.9% increase in robusta production.
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 are 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.
