Coffee Prices Surge Amidst Weather Challenges in Major Producing Countries
March arabica coffee (KCH25) closed Wednesday at +14.20 (+4.60%), while January ICE robusta coffee (RMF25) increased by +358 (+6.92%).
On Wednesday, coffee prices continued their upward trend, marking a three-week rally. March arabica reached a contract high, and December arabica hit a 47-year nearest-futures high. At the same time, January robusta coffee recorded a 1-3/4 month high. The surge in coffee prices is largely influenced by weather-related troubles affecting Brazil and Vietnam, the two largest coffee-producing countries in the world.
Earlier this year, the impacts of dry El Niño weather may result in long-term damage to coffee crops in South and Central America. In Brazil, rainfall has been below average since April, hindering the vital flowering period of coffee trees and thus affecting the forecast for Brazil’s arabica coffee production for the 2025/26 season. According to Cemaden, Brazil is experiencing its driest conditions since 1981. Meanwhile, Colombia, the second-largest arabica producer, is gradually recovering from the drought caused by El Niño.
The ongoing lack of rainfall in Brazil could limit coffee output, creating a positive market atmosphere for prices. Somar Meteorologia reported that Minas Gerais, Brazil’s largest arabica coffee-growing region, received just 6 mm of rain last week, about 10% of the historical average.
Robusta coffee prices are also rising due to decreased production. In Vietnam, drought conditions have led to a -20% drop in coffee yield for the 2023/24 crop year, resulting in 1.472 million metric tons, the lowest yield in four years. The USDA FAS projected on May 31 that robusta coffee production for the 2024/25 marketing year would decrease slightly to 27.9 million bags from 28 million bags in 2023/24.
Robusta prices are further supported by reduced supply. The General Department of Customs in Vietnam reported that coffee exports in October fell -11.6% month-on-month to 45,412 metric tons, and total exports from January to October dropped -11.1% year-on-year to 1.15 million metric tons. Additionally, heavy rains in Vietnam have flooded coffee fields and delayed harvests as the country begins its coffee harvest season.
Support for coffee prices also comes from the USDA’s Foreign Agricultural Service (FAS), which last Thursday projected that Brazil’s coffee production for 2024/25 will be 66.4 million metric tons, down from a prior estimate of 69.9 million metric tons. Furthermore, Brazil’s coffee inventories are expected to shrink to 1.2 million bags by the end of the 2024/25 season, a decline of -26% year-on-year.
Significantly, on September 19, Conab, Brazil’s agricultural forecasting agency, revised its coffee production outlook for 2024 downward to 54.8 million bags, compared to a previous figure of 58.8 million bags.
While global coffee supplies appear to be tighter, which is bullish for prices, the International Coffee Organization (ICO) reported a +25% year-on-year increase in global coffee exports for September, reaching 10.76 million bags. Exports for the entire October to September cycle rose +11.7% year-on-year to 137.27 million bags.
ICE-monitored arabica coffee inventories have seen a recovery from a 24-year low of 224,066 bags in November 2023 to a 2-1/3 year high of 893,325 bags last Thursday. Conversely, robusta inventories monitored by ICE fell to a 6-3/4 month low of 3,854 lots on November 12, following a peak of 6,521 lots in July, but remain above a record low of 1,958 lots recorded in February 2024.
Recent developments in Brazilian coffee exports have painted a mixed picture; while Cecafe reported a +11% year-on-year increase in October green coffee exports to 4.57 million bags, July data showed a record surge of +33% year-on-year for total coffee exports in 2023/24, reaching 47.3 million bags.
In a potentially bearish sign, the ICO projected that global coffee production for 2023/24 would rise +5.8% year-on-year to a record 178 million bags, driven by an exceptional off-biennial year. Consumption is also expected to climb +2.2% to reach a record 177 million bags, creating a surplus of 1 million bags.
In its bi-annual report on June 20, the USDA reported bearish projections for coffee prices. The USDA’s FAS expects world coffee production to rise +4.2% year-on-year to 176.235 million bags in 2024/25. It anticipates a +4.4% increase in arabica production to 99.855 million bags, along with a +3.9% rise in robusta output to 76.38 million bags. Ending stocks for 2024/25 are forecasted to increase by +7.7% to 25.78 million bags, up from 23.93 million bags in 2023/24.
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.
