Coffee Prices Climb as Supply Concerns Grow
Arabica Hits Record Highs Amid Drought Conditions
March arabica coffee (KCH25) on Wednesday closed up +9.05 (+2.53%), while March ICE robusta coffee (RMH25) increased by +49 (+0.88%).
Supply Forecasts Worry Producers and Traders
Coffee prices rose moderately on Wednesday, with arabica reaching a new all-time nearest-futures high and robusta hitting a two-month peak. Concerns over supply have driven prices up, particularly following a report from Conab, Brazil’s government crop forecasting agency, predicting a -4.4% year-over-year drop in Brazil’s 2025/26 coffee crop, which is estimated at 51.81 million bags, the lowest in three years.
Impact of Drought on Brazil’s Coffee Output
Ongoing worries about global coffee supplies support prices and have attracted fund buying. Volcafe adjusted its forecast for Brazil’s arabica coffee production for 2025/26 down to 34.4 million bags, an 11 million bag decrease from its previous assessment. This change resulted from a recent crop tour that highlighted the severity of prolonged drought conditions in Brazil. Volcafe also anticipates a global arabica coffee deficit of -8.5 million bags, exceeding the -5.5 million bag deficit for 2024/25, marking the fifth consecutive year of shortfalls.
Brazilian Real Boosts Coffee Prices
The Brazilian real (^USDBRL) reached a two-month high against the dollar on Wednesday, reducing the incentive for Brazilian coffee producers to sell their exports. This stabilization in currency helps sustain coffee prices.
Conab’s Recent Crop Adjustments
Another bullish indicator for coffee prices came from Conab’s action last Tuesday, which lowered Brazil’s 2024 coffee crop estimate by -1.1% to 54.2 million bags, down from a September estimate of 54.8 million bags.
Current Weather Conditions and Their Effects
Arabica coffee prices are also being propped up by lower-than-average rainfall in Brazil. Somar Meteorologia reported that the Minas Gerais region, Brazil’s largest arabica coffee producer, received only 26.5 mm of rain last week, which is just 53% of its normal historical average. The dry El Niño weather experienced last year has potential long-term impacts on coffee crops across South and Central America.
Historical Context of Drought Effects
Brazil’s rainfall has been insufficient since last April, damaging coffee plants at a critical flowering stage. This trend has led to a reduction in the forecast for Brazil’s 2025/26 arabica coffee crop. According to the natural disaster monitoring center Cemaden, Brazil is experiencing its driest conditions since 1981. Meanwhile, Colombia, the world’s second largest arabica producer, is gradually bouncing back from drought conditions exacerbated by El Niño.
Robusta Production Challenges
Prices for robusta coffee are supported by a significant decline in production. Vietnam’s coffee output for the 2023/24 crop year fell by -20% to 1.472 million metric tons, marking the smallest harvest in four years. The USDA Foreign Agricultural Service (FAS) indicated that Vietnam’s robusta coffee production for 2024/25 is expected to decrease slightly to 27.9 million bags from 28 million bags in 2023/24. Additionally, Vietnam’s coffee exports in 2024 saw a -17.1% drop year-over-year, totaling 1.35 million metric tons. However, on December 3, the Vietnam Coffee and Cocoa Association raised its 2024/25 production estimate to 28 million bags, up from 27 million bags.
Inventories and Export Dynamics
Despite some supportive factors, rising robusta coffee inventories pose a bearish outlook, as ICE-monitored inventories reached a three-and-a-quarter-month high of 4,603 lots last Friday. Conversely, while arabica coffee inventories started the year at a two-and-a-half-year high of 993,562 bags on January 6, they have since declined to a seven-week low of 902,995 bags.
Global Export Growth Influences Prices
News about increased global coffee exports is also weighing on prices. On Tuesday, Conab reported that Brazil’s coffee exports in 2024 surged by +28.8% year-over-year to a record 50.5 million bags.
Overall Production Insights
The International Coffee Organization (ICO) stated that global coffee production for 2023/24 surged by +5.8% year-over-year, reaching a record 178 million bags due to a favorable off-biennial crop year. Additionally, global coffee consumption rose by +2.2% year-over-year to 177 million bags, resulting in a 1 million bag surplus.
USDA’s MixedReport on Coffee Outlook
The USDA’s biannual report released on December 18 offered mixed signals for coffee prices. The USDA’s FAS predicts that world coffee production will rise by +4.0% year-over-year to 174.855 million bags in 2024/25, with arabica production expected to increase by +1.5% to 97.845 million bags and robusta production projected to grow by +7.5% to 77.01 million bags. However, the forecast for ending stocks in 2024/25 is a -6.6% decrease to a 25-year low of 20.867 million bags. The USDA’s FAS also revised Brazil’s 2024/25 coffee production forecast down to 66.4 million bags from a previous estimate of 69.9 million bags and predicts a reduction of -26% year-over-year in Brazil’s coffee inventories to 1.2 million bags by the end of the 2024/25 season in June.
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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