Coffee Prices Surge Amid Supply Concerns and Climate Challenges

December arabica coffee (KCZ24) closed up +9.35 (+3.44%), and January ICE robusta coffee (RMF25) increased +147 (+3.17%) today.

Record Highs Stoked by Potential Supply Issues

Today, coffee prices added to this week’s significant gains. Arabica reached a 13-year nearest-futures high, while robusta hit a one-month high. The surge in coffee prices is primarily linked to worries about supply, particularly following the European Parliament’s efforts to amend its deforestation regulations. Should the EU fail to reach an agreement by next month’s deadline, the existing EU Deforestation Regulation will take effect, possibly impacting coffee supplies from nations like Brazil and Indonesia, where deforestation remains a concern.

Weather Outlook and Its Impact on Brazil’s Coffee Production

The forecast for continued hot and dry weather in Minas Gerais, Brazil’s leading arabica coffee-producing area, has further supported coffee prices. Meteorologist Climatempo indicated that, after a brief period of rain mid-week, the weather is expected to become drier and hotter over the next ten days.

Robusta Supply Concerns Influence Prices

For robusta coffee, tight supply conditions have been a driving factor. Vietnam’s General Department of Customs reported a sharp 11.6% decrease in coffee exports in October compared to the previous month, bringing the total to 45,412 metric tons. Year-to-date, exports from January to October are down 11.1% year-on-year, totaling 1.15 million metric tons. Experts worry that heavy rains in Vietnam could flood coffee fields and delay the harvest. Being the world’s largest robusta producer, Vietnam’s harvest timing is crucial.

Long-term Climate Effects Worry Producers

Concerns about lasting damage to coffee crops due to Brazilian drought conditions contribute to price support. Rainfall in Brazil has been below average since April, disrupting coffee tree blooming and reducing the expected yield for the 2025/26 arabica coffee crop. This drought is reported to be the most severe Brazil has faced since 1981, according to the natural disaster monitoring center Cemaden.

Production Outlook and Adjustments

In addition to these supply worries, reduced robusta production has been confirmed by Vietnam’s agriculture department, which reported a 20% decline in production for the 2023/24 season compared to last year, marking the lowest output in four years. The USDA Foreign Agricultural Service also projected a slight dip in Vietnam’s robusta coffee production for the marketing year 2024/25, estimating it at 27.9 million bags.

Adding to the somber outlook, Brazil’s crop forecasting agency Conab lowered its prediction for the country’s 2024 coffee production from 58.8 million bags to 54.8 million bags earlier this month.

Global Supply Trends and Their Effect on Prices

On the flip side, data from the International Coffee Organization (ICO) indicates that global coffee exports increased by 25% year-on-year in September to 10.76 million bags, with the total from October to September up by 11.7% to 137.27 million bags, suggesting a larger-than-expected global supply which could pressure prices.

Weather Patterns Create Mixed Signals for Prices

Recent heavy rains in Brazil add complications to the price outlook. Somar Meteorologia reported that Minas Gerais received 123.9 mm of rain last week, a staggering 349% of the region’s historical average for that period.

Inventory Updates and Export Figures

Coffee inventories show signs of tightness, which supports current prices. ICE-monitored arabica coffee inventories have rebounded from a 24-year low of 224,066 bags in November 2023 to a 1.75-year high of 866,164 bags this week. In contrast, ICE-monitored robusta inventories dropped to a six-and-a-half-month low of 3,854 lots after peaking at a 1.75-year high of 6,521 lots in July.

Brazil’s export developments, however, have been bearish. Cecafe reported an 11% increase in Brazil’s green coffee exports in October, totaling 4.57 million bags. Additionally, Cecafe indicated that Brazil’s coffee exports for the 2023/24 period rose by an impressive 33% year-on-year to reach a record 47.3 million bags.

Future Projections and the Balance of Supply and Demand

Looking ahead, the ICO recently forecasted that global coffee production for the 2023/24 season would increase by 5.8% year-on-year, reaching a new high of 178 million bags. Consumption is also expected to climb by 2.2%, resulting in a modest surplus of one million bags.

According to the USDA’s bi-annual report released in June, world coffee production for the 2024/25 season is projected to rise by 4.2% to 176.235 million bags. This includes a 4.4% increase in arabica and a 3.9% rise in robusta production. The USDA also anticipates an increase in ending stocks, climbing by 7.7% to 25.78 million bags by the end of the 2024/25 marketing year.

The USDA’s FAS estimates Brazil’s arabica production for the 2024/25 season will rise by 7.3% to 48.2 million bags, driven by improved yields and increased acreage. In Colombia, the world’s second-largest arabica producer, production is expected to grow by 1.6% to 12.4 million bags.