Coffee Prices Rise Amid Brazil’s Drought Challenges
Moderate Gains in Coffee Markets This Week
March arabica coffee (KCH25) closed Monday up +7.90 (+2.47%), while January ICE robusta coffee (RMF25) increased by +21 (+0.40%).
This week, coffee prices saw moderate gains due to below-average rainfall in Brazil, which may impact its coffee production. Somar Meteorologia reported that Minas Gerais, Brazil’s largest arabica coffee-growing region, received only 35.2 mm of rain last week, about 65% of what is typical. This area is crucial since it produces a large portion of Brazil’s arabica coffee.
The robusta coffee market is also experiencing support due to indications of reduced supplies. On Monday, ICE-monitored robusta coffee inventories fell to a 7-1/2 month low of 3,672 lots. In the past two weeks, coffee prices have surged, influenced by concerns over a possible smaller coffee crop in Brazil. Just last Tuesday, March arabica futures hit a contract high, and December’s nearest-futures contract (Z24) reached a record peak. Robust coffee also climbed to a two-week high after Volcafe revised Brazil’s 2025/26 arabica production estimate down to 34.4 million bags, nearly 11 million bags lower than its September prediction due to the severity of an ongoing drought revealed during a crop tour.
These price increases are compounded by adverse weather conditions in Brazil and Vietnam, the world’s leading coffee producers, which endanger global coffee production. Sucden Financial noted that the rising prices have prompted some Brazilian coffee exporters to unwind their hedges and purchase coffee futures to cover short positions, pushing prices even higher.
Robusta coffee is additionally supported by decreased production levels in Vietnam. The Vietnam General Department of Customs reported last Wednesday that coffee exports in November plummeted 47% year-over-year to 63,019 metric tons, with January to November exports down 14% to 1.22 million metric tons. Recent flooding in Vietnam has hampered the coffee harvest, a critical period as the country begins its robusta harvest.
El Nino weather conditions earlier this year have disrupted coffee crops in South and Central America, causing persistent drought in Brazil since April, a crucial period for flowering coffee trees. The natural disaster monitoring center Cemaden reported that Brazil is experiencing its driest conditions since 1981. Meanwhile, Colombia, the second-largest arabica producer, is slowly recovering from drought-related damage.
While arabica coffee faces bearish pressures from increasing inventories, with ICE-monitored arabica coffee stocks rising to a 2-1/2 year high of 940,426 bags, uncertainty regarding Brazil’s crop damage may limit further price gains. Coffee trader Neuman Gruppe GmbH indicated that Brazil’s 2025/26 arabica crop could reach around 40 million bags, significantly higher than Volcafe’s more cautious estimate.
A decrease in robusta production due to droughts has also impacted prices. Vietnamese robusta production for the 2023/24 crop year fell by 20% to 1.472 million metric tons, marking the lowest output in four years. The USDA projected that Vietnam’s production for 2024/25 would slightly decline to 27.9 million bags compared to the previous year, but recent estimates from the Vietnam Coffee and Cocoa Association have increased to 28 million bags.
Additionally, historical data from the USDA’s Foreign Agricultural Service (FAS) indicates that Brazil’s 2024/25 coffee production forecast was revised down to 66.4 million metric tons, below prior estimates.
However, there are signs of larger global coffee supplies that may pressure prices. The International Coffee Organization (ICO) reported on December 5 that global coffee exports for October rose 15.1% year-over-year to 11.13 million bags, while the total for the 2023/24 season reached 137.27 million bags, up 11.7% from the previous year.
Bearish trends in Brazilian coffee exports have also been noted by Cecafe, which announced a 2.7% year-over-year increase in green coffee exports for Brazil, totaling 4.29 million bags. Brazil’s total coffee exports for the 2023/24 season surged 33% year-over-year to a record 47.3 million bags.
In a potentially bearish shift, the ICO projects that global coffee production for 2023/24 will increase by 5.8% to a record 178 million bags due to an exceptional off-biennial crop year. The ICO also forecasts a rise in global coffee consumption to 177 million bags, resulting in a 1 million bag surplus.
Lastly, the USDA’s bi-annual report projected a 4.2% increase in world coffee production in 2024/25, anticipating a rise in both arabica and robusta production.
On the date of publication, Rich Asplund did not hold any positions in the securities mentioned in this article. All information is for informational purposes only. Please view the Barchart Disclosure Policy for more details.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
