Coffee prices fell on Friday; May arabica down 0.71% and May robusta falling 1.36%. This loss followed rain forecasts for Brazil, which may alleviate drought conditions affecting coffee growth. Simultaneously, increased inventories and improvements in Vietnam’s coffee exports have also influenced market dynamics.
On Friday, coffee prices saw moderate losses, continuing the trend from Thursday. May arabica coffee (KCK25) settled down 2.75 cents, or 0.71%, while May ICE robusta coffee (RMK25) dropped by 74 cents, equating to a 1.36% decrease. The decline is attributed to forecasts of rain in Brazil, as Somar Meteorologia indicated a shift from dry, hot weather to increased showers next week, which may alleviate drought conditions.
Robusta coffee faced additional pressure as Vietnam’s coffee exports rose by 6.6% year-on-year to 169,000 metric tons in February. Forecasts predict consistent rainfall in Vietnam’s Central Highlands, the primary robusta-producing area, further impacting robusta prices. Vietnam is recognized as the leading producer of robusta coffee beans.
An increase in coffee inventories is contributing to bearish sentiments for coffee prices. ICE-reported robusta coffee inventories climbed to a one-month peak of 4,356 lots. Conversely, arabica inventories, which had recently hit a 9.25-month low, recovered to 809,128 bags last Thursday, marking a two-week high.
Recent reports indicate that Brazil’s major arabica production area, Minas Gerais, received 11.4 mm of rain during the week ending February 22, which is only 24% of the region’s historical average. This past update was delayed due to the Brazilian Carnival holiday. Brazil is the leading country for arabica coffee production globally.
A positive development for coffee prices is the increased rate of coffee harvest sales in Brazil. As of February 11, producers sold 88% of their 2024/25 coffee harvest, surpassing last year’s figure of 79% and the 5-year average of 82%. However, sales for the 2025/26 crop remained sluggish at 13%, indicating a shortage of new supply and hesitance among producers to sell.
Concerns regarding coffee supply continue to bolster prices. Reports indicated that Brazil’s January green coffee exports fell by 1.6% year-on-year to 3.98 million bags. The government crop agency, Conab, reduced its forecast for the 2025/26 coffee crop by 4.4%, projecting a three-year low of 51.81 million bags, and decreased the 2024 crop estimate by 1.1% to 54.2 million bags.
Long-term concerns remain as last year’s dry El Nino weather pattern could lead to persistent crop damage in South and Central America. Rainfall in Brazil has been below average since April of last year, negatively impacting coffee trees during critical flowering periods. Colombia, the second-largest arabica producer, is also slowly recovering from last year’s drought.
Vietnam’s robusta production has been adversely affected by drought, with the 2023/24 crop yield dropping by 20% to 1.472 million metric tons. The USDA projects a slight decline in robusta production for 2024/25 to 27.9 million bags, down from 28 million bags previously. Despite a decrease in exports, the Vietnam Coffee and Cocoa Association revised its production estimate for 2024/25 upwards to 28 million bags.
Global coffee export levels present a bearish outlook for prices. Conab reported an impressive increase in Brazil’s coffee exports for 2024, up 28.8% to 50.5 million bags. However, the International Coffee Organization (ICO) noted a 12.4% decline in global coffee exports for December year-on-year.
The USDA’s biannual report showed a mixed forecast for coffee prices. Projected world coffee production is expected to rise by 4.0% year-on-year in 2024/25, totalling 174.855 million bags. Arabica production is expected to increase by 1.5% to 97.845 million bags, while robusta production is seen to rise by 7.5% to 77.01 million bags. Ending stocks are projected to decrease to a 25-year low, while Brazil’s coffee production estimates have been trimmed.
For the 2025/26 marketing year, assessments led to a reduction in Brazil’s arabica coffee production estimate to 34.4 million bags, reflecting a continued decline due to extensive drought conditions. Additionally, a global arabica deficit is anticipated to widen in the coming years, marking the fifth consecutive year of shortages. Rich Asplund disclosed he did not have any positions in securities mentioned in this article, which is intended purely for informational purposes.
In conclusion, coffee prices are experiencing downward pressure due to various factors including forecasts of rainfall in Brazil, increased coffee inventories, and specific export data from Vietnam. While there are bullish signs from the sales of Brazil’s coffee harvest and concern over long-term supply disruptions, the overall market sentiment remains cautious given the fluctuations in production and export levels. Thus, coffee market participants should stay vigilant of changing weather patterns and stock quantities as they navigate these pressures.
Original Source: www.tradingview.com
