Coffee Market Update: Prices Fluctuate Amid Supply Concerns and Climate Factors
Mixed Reactions in Coffee Prices
March arabica coffee (KCH25) is down -0.60 (-0.19%), while January ICE robusta coffee (RMF25) has risen +65 (+1.25%).
Today, coffee prices show a mixed trend. Arabica coffee lost early gains and dipped slightly as the dollar index reached a 2-1/2 week high. In contrast, robusta prices increased due to tighter supply signals, with ICE-monitored robusta coffee inventories dropping to a 7-1/2 month low of 3,674 lots.
Impact of Brazil’s Coffee Crop Forecasts
This week, coffee prices rose sharply due to expectations of a smaller Brazilian coffee crop. On Tuesday, March arabica reached a contract high, and the December coffee nearest-futures contract (Z24) set a record high. Robust coffee also climbed to a two-week peak. Volcafe lowered its 2025/26 Brazil arabica coffee production estimate to 34.4 million bags, roughly 11 million bags lower than its September forecast, following reports of severe drought conditions in Brazil. Volcafe anticipates a global arabica coffee deficit of 8.5 million bags for 2025/26, which is an increase from the 5.5 million bags projected for 2024/25, marking the fifth consecutive year of deficits.
Conflicting Predictions on Crop Yields
Nevertheless, the rise in coffee prices hit a snag on Wednesday as uncertainty about Brazil’s crop damage persisted. A statement from coffee trader Neuman Gruppe GmbH suggested that Brazil’s 2025/26 arabica crop could total around 40 million bags, which is significantly higher than Volcafe’s forecast. They noted it’s still “too early” to make an accurate assessment of the 2025/26 crop.
Supply Increase and Trade Dynamics
Arabica coffee’s price struggles are linked to increased supply, with ICE-monitored arabica inventories rising to a 2-1/2 year high of 929,357 bags as of Thursday.
Conversely, robusta coffee finds support from constrained supplies from Vietnam. The Vietnam General Department of Customs reported that November coffee exports plummeted -47% year-over-year to 63,019 MT, while January-November exports dropped -14% year over year to 1.22 MMT. Recent heavy rains in Vietnam have flooded coffee fields and hindered the robusta harvest, contributing to production concerns in the world’s largest robusta coffee producer.
Weather’s Role in Price Dynamics
The surge in coffee prices is fueled by unfavorable weather in both Brazil and Vietnam, two of the largest coffee producers in the world. Sucden Financial highlights that this price rise has led some Brazilian coffee exporters to unwind their hedges and purchase coffee futures to mitigate short positions, further driving up prices.
The negative effects of this year’s dry El Niño conditions could result in ongoing damage to coffee crops across South and Central America. Rainfall in Brazil has been consistently low since April, adversely affecting coffee trees during their critical flowering stage and hampering prospects for the 2025/26 arabica crop. According to Cemaden, Brazil is experiencing its driest weather since 1981. Additionally, Colombia, the second-largest arabica producer globally, is slowly recovering from drought induced by El Niño earlier this year.
Rainfall Shortfalls and Output Projections
Low rainfall in Brazil may restrict coffee output, which is bullish for prices. Somar Meteorologia reported that Minas Gerais, Brazil’s top arabica coffee region, received only 60.9 mm of rainfall last week, equating to just 91% of the historical average.
Future Projections for Robusta Coffee
Reduced robusta production is supporting prices. Due to drought, Vietnam’s coffee output for the 2023/24 season is expected to decline by -20% to 1.472 MMT, the lowest in four years. The USDA FAS projected that Vietnam’s robusta production for the marketing year 2024/25 would decrease slightly to 27.9 million bags from 28 million bags in 2023/24. However, the Vietnam Coffee and Cocoa Association recently revised its estimate for 2024/25 up to 28 million bags from 27 million bags.
Global Supply and Demand Trends
Carryover support for coffee prices stems from the USDA’s Foreign Agricultural Service (FAS) projecting Brazil’s 2024/25 coffee production at 66.4 MMT, shy of its earlier forecast of 69.9 MMT. Moreover, the USDA FAS estimates Brazil’s coffee inventories will shrink by -26% year over year to 1.2 million bags by the end of the 2024/25 season in June.
In a bearish indication for prices, the International Coffee Organization (ICO) reported a +15.1% year-over-year rise in global coffee exports for October, amounting to 11.13 million bags, as the 2024/25 season commenced. Exports for the entire 2023/24 season also saw an increase, rising +11.7% year-over-year to 137.27 million bags.
Brazil’s coffee export situation appears less favorable. Cecafe reported that Brazil’s green coffee exports rose by +2.7% year-over-year to 4.29 million bags, while total coffee exports for Brazil for 2023/24 jumped +33% year-over-year to a record 47.3 million bags.
Looking ahead, the ICO recently forecast that global coffee production for the 2023/24 season would see a +5.8% year-over-year increase, hitting a record 178 million bags, driven by an exceptional off-biennial crop year. They also anticipate that global coffee consumption will rise by +2.2% year-over-year to a record 177 million bags, resulting in a one million bag surplus.
Additionally, the USDA’s bi-annual report from June was bearish, indicating that world coffee production in 2024/25 will rise by +4.2% year-over-year to 176.235 million bags, including a +4.4% increase for arabica production and a +3.9% rise for robusta production. The USDA FAS expects 2024/25 ending stocks to increase by +7.7% to 25.78 million bags from 23.93 million bags in 2023/24.
On the date of publication, Rich Asplund did not hold positions in any of the securities mentioned in this article. All information and data provided are meant 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.
