Coffee Prices Surge: Supply Concerns Drive Market Higher
December arabica coffee (KCZ24) is currently up +3.30 (+1.18%), while January ICE robusta coffee (RMF25) has increased by +72 (+1.51%).
Market Overview: A Week of Gains for Coffee
Coffee prices are experiencing a moderate increase, with robusta reaching a one-month high. This week, prices have surged, as arabica hit a 13-year high on Thursday amidst supply worries. A recent vote by the European Parliament to revise deforestation regulations has raised concerns about future coffee supplies from major producers like Brazil and Indonesia, as these regulations could limit coffee imports from areas affected by deforestation. Under the proposed EU Deforestation Regulation (EUDR), companies must verify that their products were not sourced from deforested or degraded land post-2020.
Drought Conditions Raise Alarm for Brazil’s Coffee Crop
The forecast for persistent hot and dry weather in Minas Gerais, Brazil’s leading Arabica region, is bolstering coffee prices. According to meteorologist Climatempo, the region can expect hotter and drier conditions in the coming days, following a brief period of rain.
Vietnam’s Coffee Export Declines Impact Robusta Prices
Recent data from Vietnam’s General Department of Customs indicates a significant drop in coffee exports. October exports fell by -11.6% month-over-month to 45,412 metric tons, while coffee exports from January to October decreased by -11.1% year-over-year to 1.15 million metric tons. Further concerns arise from heavy rains that could inundate coffee fields and delay the harvest in Vietnam, the world’s largest robusta producer.
Long-term Crop Damage and Drought Impacts
Underlying issues for coffee prices include worries about long-term crop damage due to prolonged drought in Brazil. Since April, rainfall has been below normal, adversely affecting coffee trees at a crucial blooming stage and jeopardizing Brazil’s arabica production for the 2025/26 season. The National Disaster Monitoring Center (Cemaden) notes that Brazil is facing its driest conditions since 1981.
Production Declines Forecasted for Robusta Coffee
Robusta prices are also reinforced by shrinking production levels. The Vietnamese agriculture department reported on March 26 that production for 2023/24 has decreased by -20% to 1.472 million metric tons, marking the lowest output in four years due to drought conditions. The USDA’s Foreign Agricultural Service anticipates a slight decline in Vietnam’s robusta output for the 2024/25 marketing year, dropping to 27.9 million bags.
Brazil’s Coffee Production Projections Revised Downward
Additionally, Brazil’s crop forecasting agency, Conab, reduced its 2024 production estimate from 58.8 million bags to 54.8 million bags—a factor likely to support coffee prices moving forward.
Global Coffee Supply Shows Signs of Increase
Despite rising prices, recent reports from the International Coffee Organization (ICO) suggest a bearish outlook due to increased global coffee exports. The ICO announced that September exports rose by +25% year-over-year to 10.76 million bags and that total exports for the October to September period increased by +11.7% to 137.27 million bags.
Weather Developments Affecting Brazilian Coffee Prices
Contrary to drought worries, recent rainfall in Minas Gerais, which received 123.9 mm of rain last week—349% of the historical average—could also impact coffee prices negatively. This area remains crucial, being Brazil’s largest producer of arabica coffee.
Inventory Levels and Export Data Contribute to Price Trends
Tight coffee inventories continue to support prices, with ICE-monitored arabica coffee stocks recovering from a 24-year low of 224,066 bags in November 2023 to a 1-3/4 year high of 873,589 bags. Conversely, robusta coffee inventories fell to a 6-1/2 month low of 3,854 lots, after peaking in July.
Bearish Signals from Brazilian Export Figures
Brazil’s coffee export figures, however, present a bearish trend. Cecafe noted an +11% increase in green coffee exports in October to 4.57 million bags, and overall coffee exports for 2023/24 could reach a record 47.3 million bags, up +33% year-over-year.
Future Projections and Market Outlook
Looking ahead, the ICO forecasts a +5.8% increase in global coffee production for the 2023/24 season, potentially reaching a record 178 million bags. Meanwhile, coffee consumption is expected to rise by +2.2% to reach 177 million bags, creating a surplus of 1 million bags.
The USDA’s bi-annual report released on June 20 was also pessimistic for coffee prices. Their Foreign Agricultural Service projected a +4.2% annual increase in world coffee production for the 2024/25 season, totaling 176.235 million bags, with arabica production climbing to 99.855 million bags and robusta production to 76.38 million bags. They also anticipate an increase in ending stocks to 25.78 million bags for the 2024/25 season.
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.
