Coffee Prices Surge Amid Drought Concerns in Major Producing Countries
Major factors: Brazil’s crop estimates and adverse weather fuel market volatility
March arabica coffee (KCH25) is currently up +1.30 (+0.41%), while January ICE robusta coffee (RMF25) has increased by +36 (+0.70%).
Today, coffee prices are showing moderate gains as they stabilize following this week’s significant uptick. Earlier in the week, March arabica reached a contract high, and the December nearest-futures contract (Z24) achieved a record high. Meanwhile, robusta coffee rose to a one-week peak. The surge in prices is attributed to expectations of a smaller coffee crop in Brazil. Volcafe has revised its 2025/26 Brazil arabica coffee production estimate down to 34.4 million bags, an 11 million bag reduction from the September estimate. This adjustment arose after a crop tour highlighted the severity of an ongoing drought in Brazil. Volcafe also foresees a global arabica coffee shortfall of 8.5 million bags for 2025/26, surpassing the 5.5 million bag deficit projected for the 2024/25 season, marking five consecutive years of deficits.
However, the recent rally in coffee prices showed signs of stagnation on Wednesday due to uncertainties surrounding Brazil’s coffee crop damage. Neuman Gruppe GmbH, a coffee trader, suggested that Brazil’s 2025/26 arabica output could hit 40 million bags, significantly more than Volcafe’s lower prediction. They indicated that it remains “too early” for an accurate assessment of the Brazil coffee crop.
Additional pressure on arabica coffee can be seen in the rising current supplies. On Wednesday, ICE-monitored arabica coffee inventories rose to a 2-1/2 year high of 919,388 bags.
Robusta coffee prices, on the other hand, find support from lower supplies coming out of Vietnam. The Vietnam General Department of Customs reported a 47% year-on-year decline in November coffee exports to 63,019 metric tons, while exports from January to November fell 14% year-on-year to 1.22 million metric tons. Recent heavy rainfall in Vietnam has flooded coffee fields, delaying the robusta coffee harvest. As the largest robusta coffee producer in the world, Vietnam has just commenced its coffee harvest. Furthermore, current robusta supplies are tight, as ICE-monitored inventories fell to a 7-1/2 month low of 3,674 lots last Friday.
Coffee prices have soared in response to unfavorable weather conditions in Brazil and Vietnam, the leading coffee-producing nations, jeopardizing global coffee production. Sucden Financial noted that the price increases have prompted some Brazilian coffee exporters to reverse their hedges and purchase coffee futures to cover short positions, further driving up prices.
The impact of dry El Niño conditions earlier this year may lead to long-term crop damage for coffee in South and Central America. In Brazil, rainfall has consistently failed to meet average levels since April, negatively impacting coffee trees during their critical flowering stage and diminishing the prospects for the 2025/26 arabica crop. Brazil has experienced its driest weather since 1981, according to Cemaden, a natural disaster monitoring center. In addition, Colombia, the second-largest arabica producer, is gradually recovering from a drought aggravated by El Niño early this year.
Despite the rainfall challenges, Somar Meteorologia reported that Brazil’s largest arabica coffee-producing region, Minas Gerais, received only 60.9 mm of rain last week, which is 91% of the historical average.
Robusta coffee prices are supported by reduced production figures. Due to drought, Vietnam’s coffee production for the 2023/24 crop year is forecasted to drop by 20% to 1.472 million metric tons, making it the smallest crop in the past four years. The USDA’s Foreign Agricultural Service (FAS) projected a slight decline, estimating Vietnam’s robusta production for the upcoming 2024/25 marketing year at 27.9 million bags, down from 28 million bags for the 2023/24 season. Contrarily, the Vietnam Coffee and Cocoa Association revised its 2024/25 production estimate upward to 28 million bags from 27 million bags previously.
Support for coffee prices can also be traced back to projections from the USDA’s FAS. On November 22, they forecasted that Brazil’s 2024/25 coffee production would reach 66.4 million metric tons, revised down from a prior estimate of 69.9 million bags. Furthermore, they predict Brazil’s coffee inventories will decrease by 26% year-on-year to 1.2 million bags by the end of the 2024/25 season in June.
Nevertheless, emerging signs of larger global coffee supplies introduce a bearish element for prices. On Thursday, the International Coffee Organization (ICO) reported that global coffee exports for October, marking the beginning of the 2024/25 season, rose by 15.1% year-on-year to 11.13 million bags. Total global coffee exports for the 2023/24 season (October to September) also increased by 11.7% year-on-year to 137.27 million bags.
Concerning Brazilian coffee export data, Cecafe noted on Monday that Brazil’s green coffee exports increased by 2.7% year-on-year to 4.29 million bags, and coffee exports for 2023/24 rose by 33% year-on-year to reach a record 47.3 million bags.
Strengthening the bearish narrative, the ICO recently announced that global coffee production for 2023/24 is expected to rise by 5.8% year-on-year to a record of 178 million bags, primarily due to an exceptional off-biennial crop year. The ICO also predicted a 2.2% year-on-year increase in global coffee consumption for 2023/24, reaching a record 177 million bags, leading to a 1 million bag surplus.
The USDA’s biannual report dated June 20 also presented a bearish outlook. The USDA’s FAS forecasted a 4.2% year-on-year increase in global coffee production for 2024/25 to 176.235 million bags. This includes a projected 4.4% uptick in arabica production to 99.855 million bags and a 3.9% rise in robusta production to 76.38 million bags. Furthermore, they anticipate 2024/25 ending stocks to increase by 7.7% to 25.78 million bags from 23.93 million bags in 2023/24.
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
