Coffee Prices Surge Amid Supply Concerns: A Look at Current Trends
December arabica coffee (KCZ24) Wednesday closed up +8.10 (+3.07%), and January ICE robusta coffee (RMF25) closed up +95 (+2.09%).
On Wednesday, coffee prices continued their upward trend, marking a 7-week high for arabica and a 3-week high for robusta. In Brazil, coffee farmers are withholding supplies from the market, hoping for better prices. This strategy has restricted availability in the cash market, contributing to rising coffee prices. Furthermore, predictions of ongoing hot and dry weather in Minas Gerais, Brazil’s leading Arabica coffee region, are bolstering arabica prices. Meteorologist Climatempo noted that, following a brief period of rain mid-week, forecasts indicate hotter, drier conditions over the next ten days.
The robusta market is also feeling the impact of tight supply. Vietnam’s General Department of Customs reported a decline in coffee exports of -11.6% month-over-month, to 45,412 metric tons in October. For January to October, exports fell -11.1% year-over-year to 1.15 million metric tons. The robusta market is further influenced by concerns that heavy rains in Vietnam could flood coffee fields, delaying the harvest in the world’s largest robusta-producing nation.
Long-term, coffee prices remain supported by worries about potential crop damage in Brazil due to prolonged drought conditions. Since April, rainfall has consistently been below average, negatively affecting coffee trees during the flowering phase. The current drought is the most severe Brazil has faced since 1981, according to Cemaden, Brazil’s natural disaster monitoring center.
Moreover, robusta coffee prices are being supported by falling production levels. Vietnam’s agriculture department announced in March that coffee production for the 2023/24 crop year will decrease by -20% to 1.472 million metric tons. The USDA FAS has projected a slight dip in Vietnam’s robusta coffee production for the 2024/25 marketing year, estimating 27.9 million bags, down from 28 million in 2023/24.
Supporting the coffee market, Conab, Brazil’s crop forecasting agency, reduced its 2024 coffee production forecast on September 19 from 58.8 million bags to 54.8 million bags.
Contrarily, some analysts point out that signs of increased global coffee supplies could suppress prices. The International Coffee Organization (ICO) reported last Friday that global coffee exports rose +25% year-over-year in September, totaling 10.76 million bags, with exports from October to September increasing +11.7% y/y to 137.27 million bags.
Recent rainfall in Brazil has had a mixed effect on coffee prices. Somar Meteorologia reported that Brazil’s largest arabica-producing region, Minas Gerais, received 123.9 mm of rain last week—349% of the historical average. This could create challenges for coffee production moving forward.
On the supply side, ICE-monitored arabica coffee inventories rebounded from a 24-year low of 224,066 bags in November 2023 to a 1-3/4 year high of 866,164 bags on Wednesday. In contrast, ICE-monitored robusta coffee inventories fell to a 6-1/2 month low of 3,854 lots on Tuesday, down from a 1-3/4 year high of 6,521 lots in July but remaining above the record low of 1,958 lots from February 2024.
Recent Brazilian export data has been bearish. Cecafe reported that Brazil’s green coffee exports in October rose +11% year-over-year to 4.57 million bags. Additionally, Brazil’s 2023/24 coffee exports were up +33% year-over-year to a record 47.3 million bags.
The ICO released projections last month suggesting that global coffee production for 2023/24 will increase by +5.8% YoY to reach a record 178 million bags. They also noted that global coffee consumption is predicted to grow +2.2% YoY to a record 177 million bags, resulting in a coffee surplus of 1 million bags.
Furthermore, the USDA’s bi-annual report on June 20 indicated a bullish outlook for coffee prices. The USDA’s Foreign Agriculture Service (FAS) projected a +4.2% increase in world coffee production for 2024/25 to 176.235 million bags, aided by a +4.4% rise in arabica output to 99.855 million bags and a +3.9% increase in robusta output to 76.38 million bags. Ending stocks for 2024/25 are expected to climb +7.7% to 25.78 million bags from 23.93 million bags in 2023/24. The USDA FAS also anticipates that Brazil’s arabica production will increase by +7.3% YoY to 48.2 million bags due to higher yields and increased planted acreage. Production in Colombia, the world’s second-largest arabica producer, is forecasted to rise +1.6% YoY to 12.4 million bags.
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 those of the author and do not necessarily reflect those of Nasdaq, Inc.
