Coffee Prices Surge on Drought Concerns in Vietnam
After a tumultuous climb of +5.85 (+2.96%) for May arabica coffee (KCK24) and a robust +149 (+4.07%) surge for May ICE robusta coffee (RMK24) on Wednesday, it is evident that coffee prices have taken a pungent turn. Vietnam, a key player in the coffee world, is grappling with excessive dryness that threatens to curb robusta coffee production significantly. This dire situation is having a ripple effect on prices, bolstering robusta and lending support to arabica.
Brazil on the Rocks: Rain Dampens Coffee Crops
Meanwhile, Brazil’s coffee crops may be reeling from recent heavy rainfall. Reports indicate that the Minas Gerais region, responsible for 30% of Brazil’s arabica production, received an inundation of 75.4mm of rainfall – significantly higher than the historical average. This meteorological twist has added an extra layer of complexity to the already volatile coffee market.
Vietnam Faces Coffee Crop Crisis
Tight supplies of robusta coffee from Vietnam, the top global producer of robusta beans, are exacerbating the situation. Forecasts by Vietnam’s agriculture department predict a substantial -20% drop in coffee production for the upcoming year, the lowest in four years. Additionally, the looming deficit in robusta coffee for the global market, estimated at -2.7 million bags for the 2024/25 season, is stoking concerns among traders and investors alike.
The Full Cup: Coffee Production and Exports
On the contrary, a surge in Vietnam’s Q1 coffee exports by +8.3% y/y could potentially ease the pressure on robusta prices. However, reports from Rabobank hint at a looming coffee surplus in the upcoming marketing year. The projection of a 4.5 million bag surplus for 2024-25 starkly contrasts with the previous year’s estimate of 500,000 bags. While this may bring a sense of relief, the global coffee market remains on edge.
At the same time, coffee inventories are on a rollercoaster ride, rebounding from historical lows. Robusta inventories hit a record low before bouncing back to a 2-1/4 month high, and arabica inventories climbed back from a 24-year low to a 10-1/4 month high. The market is teetering on a delicate balance.
Global Dynamics: Brazil’s Role in the Coffee Market
Larger coffee exports from Brazil could tilt the scales toward a surplus. Recent reports of a significant uptick in Brazil’s Feb arabica coffee exports, coupled with an upward revision in the country’s coffee export estimate by a Brazil exporter group, signify a potential flood of coffee into the market. The world’s largest producer of arabica beans may play a decisive role in shaping the future of coffee prices globally.
The Impact of El Nino and Global Projections
This year’s El Nino phenomenon introduces a new variable in the coffee market equation. With its potential to disrupt coffee production in crucial regions like Brazil and India, the looming El Nino could spell trouble for supplies. Additionally, reports from the International Coffee Organization (ICO) point towards a surplus in global coffee production, a factor that may further influence market dynamics.
On the flip side, the USDA’s Foreign Agriculture Service (FAS) projects a modest increase in world coffee production for the upcoming year. With an anticipated surge in arabica production and a slight decline in robusta, the global coffee landscape is poised for a period of adaptation and adjustment.
More Coffee News from Barchart
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.
