Coffee prices have risen due to drought conditions in Brazil and a weakened U.S. dollar, with significant concerns about future production levels. Increased inventories may negatively impact prices. Projections indicate worsening supply scenarios for 2025/26, contributing to market anxieties.
Coffee prices have increased recently due to below-normal rainfall in Brazil and a weakened U.S. dollar. Specifically, May arabica coffee is up 1.59%, and May ICE robusta coffee has risen 3.18%. Reports indicated that Brazil’s Minas Gerais region, a major coffee-growing area, experienced only 1.1 mm of rain, equating to just 2% of the historical average for the week ending March 8.
Simultaneously, the dollar index fell to its lowest level in nearly five months, contributing to the price increase. However, an increase in coffee inventories may exert downward pressure on prices, with arabica inventories reaching a one-week high of 799,406 bags and robusta inventories rising to a one-month high of 4,356 lots.
A projection from Marex Solutions noted a global coffee surplus for the 2025/26 season will likely widen to 1.2 million bags. In addition, robusta coffee prices could be negatively impacted by a report indicating that Vietnam’s coffee exports grew by 6.6% year-over-year, securing its position as the leading robusta producer.
Concerns about coffee supplies continue to support price levels, with Brazil’s green coffee exports dropping by 1.6% year-over-year as reported by Cecafe. Forecasts indicate a further decline in Brazil’s coffee crop, which is projected to reach a three-year low of 51.81 million bags for the 2025/26 season, down by 4.4% year-over-year.
Brazil has experienced the driest conditions since 1981, posing risks to the flowering stages of coffee trees and negatively affecting future yields. Moreover, Colombia is slowly recovering from El Nino conditions that previously impacted its arabica production. In the 2023/24 crop year, Vietnam also saw a 20% fall in robusta output, resulting in projections for continued low production levels.
Despite increased global coffee exports from Brazil, which rose by 28.8% year-over-year, the International Coffee Organization reported a decline in overall global exports. The USDA’s latest report indicates a mixed outlook for coffee prices, projecting a 4% increase in world coffee production but also forecasting a significant decrease in ending stocks to a 25-year low.
For the 2025/26 marketing year, Volcafe reduced its estimate for Brazilian arabica coffee production due to severe drought conditions, expecting a global deficit of 8.5 million bags. Overall, the market reflects various complexities impacting coffee pricing, primarily driven by environmental conditions and international production outputs.
In summary, coffee prices are rising due to adverse weather conditions in Brazil and a weak dollar, although increasing inventories could counteract these gains. Future projections suggest a continued decline in both Brazilian and global coffee production, contributing to fears of supply shortages. Industry analysts remain cautious as they monitor ongoing trends affecting coffee markets around the world.
Original Source: www.tradingview.com
