Coffee Futures Slip as Brazil Faces Currency Challenges
Coffee prices retreated from early gains today, influenced by a significant decline in the Brazilian real against the dollar. This decline has sparked increased selling by Brazilian coffee producers, leading to a retreat in coffee futures.
In today’s trading, March arabica coffee (KCH25) decreased by -2.65 (-0.82%), while January ICE robusta coffee (RMF25) fell by -88 (-1.58%). Despite these drops, coffee prices have recently enjoyed a strong rally, with March arabica hitting a contract high and December arabica reaching a 47-year highest level for nearest futures. Furthermore, January robusta coffee saw a 2-1/2 month peak.
These rising prices come amid adverse weather conditions in Brazil and Vietnam, the two largest coffee-producing countries. Sucden Financial noted that the current price surge has led Brazilian coffee exporters to unwind hedges and purchase coffee futures to cover losses, further escalating prices.
The lingering effects of the dry El Nino weather earlier this year may result in long-lasting damage to coffee crops in South and Central America. According to the natural disaster monitoring center Cemaden, Brazil has experienced its driest conditions since 1981, and rainfall has consistently fallen below average since April, jeopardizing coffee trees during the critical flowering stage, which may affect the 2025/26 arabica coffee crop.
Minas Gerais, Brazil’s largest arabica-producing area, reported only 6 mm of rain last week, approximately 10% of the historical average, suggesting a potential decline in coffee production and an increase in prices.
While arabica prices are on the rise, robusta prices are also supported by diminished production. Vietnam’s coffee output for the 2023/24 crop year is projected to have declined by -20% to 1.472 MMT due to drought conditions. The USDA FAS on May 31 forecasted a slight decrease in Vietnam’s robusta production for the 2024/25 marketing year to 27.9 million bags from 28 million bags in 2023/24.
Supply shortages for robusta coffee are contributing to a price increase, especially following a report from Vietnam’s General Department of Customs that indicated an 11.6% month-over-month decline in October coffee exports to 45,412 MT and an 11.1% year-over-year decrease in January-October exports to 1.15 MMT. Recent flooding in Vietnam has also delayed the coffee harvest, putting additional pressure on supply.
Recent data from the USDA’s Foreign Agricultural Service (FAS) projected Brazil’s 2024/25 coffee production at 66.4 MMT, which is below previous estimates of 69.9 MMT. Also, inventories are expected to drop -26% year-over-year to 1.2 million bags by the end of the 2024/25 season in June.
Brazil’s crop forecasting agency, Conab, recently revised its coffee production estimate downward from 58.8 million bags to 54.8 million bags for 2024. This downward revision adds to the supportive factors for coffee prices.
However, there are some bearish indicators for coffee prices as the International Coffee Organization (ICO) reported a notable increase in global coffee exports. In September, exports rose by +25% year-over-year to 10.76 million bags, and the total from October to September increased by +11.7% year-over-year to 137.27 million bags.
On the inventory front, coffee prices have benefitted from a rebound in ICE-monitored arabica coffee inventories, which rose from a 24-year low of 224,066 bags in November 2023 to a 2-1/3 year high of 903,548 bags recently. In contrast, robusta coffee inventories have reached a 7-month low of 3,847 lots.
Brazilian coffee export data presents a mixed picture. Cecafe reported that Brazil’s green coffee exports for October increased by +11% year-over-year to 4.57 million bags, and overall exports for the 2023/24 season surged by +33% year-over-year to a record 47.3 million bags.
Looking ahead, the ICO’s projection for global coffee production in 2023/24 suggests an increase of +5.8% year-over-year to a record 178 million bags, leading to a potential surplus of 1 million bags against a consumption expected to rise by +2.2% to a record 177 million bags. The USDA also projects a +4.2% year-over-year increase in world production for 2024/25, indicating robust growth in both arabica and robusta outputs.
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 are 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.
