Coffee Prices Surge Amid Drought and Supply Concerns
Arabica Reaches 13-Year High as Drought Worsens in Brazil
December arabica coffee (KCZ24) is currently up +13.10 (+4.68%), while January ICE robusta coffee (RMF25) has increased by +138 (+2.96%). Major increases in coffee prices are evident, with arabica reaching a 13-year high for nearest futures. The steep rise is fueled by worries over potential long-term crop damage in Brazil due to ongoing drought conditions. Since April, rainfall in Brazil has remained below normal, impacting coffee trees during the crucial flowering period, which threatens Brazil’s arabica coffee production in the 2025/26 season. Notably, Brazil is facing its driest weather since 1981, as reported by the natural disaster monitoring center Cemaden.
Vietnam’s Production Cuts Pressure Robusta Prices
Robusta prices are also climbing due to tight supplies. Vietnam’s General Department of Customs announced that the country’s coffee exports fell by -11.6% month-over-month in October, totaling 45,412 MT. Furthermore, total exports from January to October decreased by -11.1% year-over-year to 1.15 MMT. Concerns are rising that heavy rains in Vietnam could flood coffee fields, thus delaying the coffee harvest. As the world’s largest producer of robusta, Vietnam is currently at the beginning of its harvest season.
Declines in Production Forecasts for Vietnam
Robusta coffee prices are bolstered by declining production forecasts. According to Vietnam’s agriculture department, the country’s coffee output for the 2023/24 crop year dropped by -20% to 1.472 MMT, marking the smallest crop in four years due to drought conditions. The USDA Foreign Agricultural Service (FAS) projected on May 31 that robusta production for the marketing year of 2024/25 will decrease slightly to 27.9 million bags from 28 million bags in 2023/24.
Brazil’s Production Expectations Lowered
Conab, Brazil’s crop forecasting agency, recently reduced its 2024 coffee production estimate to 54.8 million bags, down from 58.8 million bags projected in May. Despite this, recent rainfall in Brazil has relieved some drought-related concerns, particularly in Minas Gerais, the nation’s largest arabica-producing area, where rainfall last week was reported at 60.9 mm, which is about 127% of the historical average.
Global Coffee Supplies Show Mixed Trends
While tight coffee inventories are pushing prices up, a recent report from the International Coffee Organization (ICO) revealed that global coffee exports for September increased by +25% year-over-year to 10.76 million bags, with overall exports from October to September rising +11.7% year-over-year to 137.27 million bags. Additionally, ICE-monitored arabica coffee inventories have seen a notable recovery, rising from a 24-year low of 224,066 bags in November 2023 to a 1-3/4 year high of 879,117 bags. In contrast, robusta inventories fell to a 6-1/2 month low of 3,854 lots last Tuesday.
Competing Factors Affecting Market Sentiment
Recent Brazilian export data has painted a less optimistic picture. Cecafe reported a +11% year-over-year rise in Brazil’s green coffee exports for October, totaling 4.57 million bags. Prior reports indicated that Brazil’s total coffee exports for 2023/24 would rise significantly, even reaching a record 47.3 million bags, up +33% year-over-year. Adding to the challenges, the ICO has estimated an increase in global coffee production of +5.8% year-over-year for the 2023/24 season, reaching a record 178 million bags, while global consumption is expected to grow +2.2% year-over-year to 177 million bags, resulting in a slight surplus.
USDA’s Latest Forecast Raises Concerns
The USDA’s bi-annual report released on June 20 raised concerns for coffee prices as it projected a +4.2% increase in world coffee production for 2024/25, reaching 176.235 million bags. The agency anticipates that arabica production will grow by +4.4% to 99.855 million bags, and robusta production will see a +3.9% rise to 76.38 million bags. Furthermore, ending stocks for 2024/25 are predicted to increase by +7.7% to 25.78 million bags, compared to 23.93 million bags in 2023/24. The forecast also indicates a +7.3% increase in Brazil’s arabica coffee production for 2024/25, reaching 48.2 million bags, alongside a +1.6% rise in Colombia’s 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 is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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