Coffee prices have rallied due to dry weather in Brazil impacting crop yields, with arabica up 3.71% and robusta up 0.66%. Reduced inventories and a significant percentage of the harvest already sold have heightened market concerns. Despite some growth in global exports, projections indicate a continuing deficit in coffee supply, particularly for arabica, leading to potential future price volatility.
Coffee prices have been trending upward, with May arabica coffee increasing by 3.71% and May robusta coffee by 0.66%. This surge is attributed to dry weather in Brazil, which poses a significant risk to crop yields during a critical development phase ahead of the May harvest. According to Somar Meteorologia, continued high temperatures and drought conditions could adversely impact Brazilian coffee production in the coming weeks.
Recently, Brazil’s Minas Gerais, the largest arabica coffee-producing area, received only 24% of its historical average rainfall, raising concerns about future coffee yields. As the world’s leading arabica coffee producer, Brazil’s dry spells have precipitated fears regarding the viability of upcoming harvests, contributing to rising coffee prices.
The decline in coffee inventories has further amplified prices. ICE data indicated a drop in robusta coffee inventories to a two-month low, alongside a decrease in arabica coffee stocks to a 9-1/4 month low, although they have since rebounded slightly. These shrinking supplies have heightened market anxiety over future coffee availability.
Additionally, a notable amount of Brazil’s coffee harvest has already been sold, with 88% reported by Safras & Mercado. This figure exceeds last year’s 79% and the five-year average of 82%, suggesting fewer coffee beans will be available for sale moving forward, particularly for the 2025/26 crop year.
Exacerbating these supply concerns, January green coffee exports from Brazil fell by 1.6% year-on-year, and the government forecasted a reduction in both the 2024 and 2025 coffee crop estimates. The ongoing impact of last year’s dry El Niño conditions has added to the challenges faced by coffee growers in both Brazil and Colombia.
Conversely, robusta prices remain strong despite production challenges in Vietnam, where drought conditions have led to a 20% decrease in coffee production for the 2023/24 crop year. The USDA projects a slight decline in Vietnam’s robusta output for the upcoming marketing year, tightening global supplies further.
However, news of increased global coffee exports could dampen prices. While Brazil’s coffee exports rose by 28.8% year-on-year, the ICO reported a drop in global exports for December, signaling a complex market situation. The USDA anticipates a 4% overall increase in world coffee production for the 2024/25 season but with expected declines in coffee stocks at historically low levels.
Looking ahead, projections of significant deficits in the arabica coffee market, particularly for the 2025/26 marketing year, underscore the potential for continued price volatility, driven primarily by climatic conditions in key producing regions like Brazil.
The recent rise in coffee prices is primarily due to adverse weather conditions in Brazil, which threaten crop yields and tighten supply. Inventory reductions, a significant portion of harvests already sold, and implications of long-term drought exacerbate the situation. Furthermore, despite some positive export data, a global coffee supply deficit is projected. The coffee market remains poised for fluctuations as climatic factors continue to shape production outcomes.
Original Source: www.tradingview.com
