Coffee prices are declining due to forecasted rain in Brazil, easing dryness concerns. Increased coffee inventories and predictions of a larger global surplus contribute to the bearish trend. However, production declines in Brazil and Vietnam pose potential upward pressure on prices. The market outlook is thus uncertain, considering these conflicting signals.
Coffee prices have seen a decline today, with May arabica coffee falling 0.23% to a 1-1/2 week low and robusta down 0.40%. The drop can be attributed to forecasted widespread rain in Minas Gerais, Brazil’s largest arabica region, helping to alleviate dryness concerns. This forecast by Somar Meteorologia suggests improving weather conditions for coffee growth, which typically pressures prices downward.
An increase in coffee inventories reported by ICE also negatively impacts coffee prices. Arabica inventories reached a one-week high of 803,032 bags, while robusta inventories rose to a one-month peak of 4,356 lots. Such increases contribute to easing supply fears that typically support higher prices.
Further compounding the bearish sentiment, Marex Solutions reported that the global coffee surplus for the 2025/26 season is anticipated to expand to 1.2 million bags, a significant increase from the previous surplus of 200,000 bags for the 2024/25 season. This news reflects ongoing oversupply conditions impacting market pricing.
In addition, Vietnam’s coffee exports rose in February by 6.6% year-on-year to 169,000 metric tons, further influencing robusta coffee prices negatively. As the leading producer of robusta beans, Vietnam’s production fluctuations are crucial to the market stability of this coffee type.
Despite some bearish indicators, coffee prices received moderate support from below-normal rainfall patterns in Brazil. Minas Gerais recorded only 1.1 mm of rain in early March, markedly below historical averages. Moreover, a decline in the dollar index has provided additional support to coffee prices.
Supply concerns have been persistent, with reports indicating a decline in Brazil’s coffee exports by 1.6% year-on-year during January, correlating with predictions of reduced coffee crop yields. Conab reported a projected 4.4% reduction in Brazil’s 2025/26 coffee crop to 51.81 million bags, further emphasizing tight supply conditions due to environmental stressors.
The impact of last year’s dry El Nino weather continues to affect coffee crop health in Brazil and Colombia. Brazil is experiencing its driest conditions since 1981, which has lasting effects on the flowering stage of coffee trees, impairing future yields.
Robusta coffee prices are currently supported by reduced production volumes from Vietnam, where drought conditions have led to a 20% drop, marking the smallest output in four years. Projections for production in the 2024/25 season indicate further slight declines in robusta coffee output.
Reports of rising global coffee exports, particularly from Brazil, heighten bearish market sentiment, with record exports in 2024 adding to the oversupply narrative. The USDA FAS projects an overall increase in global coffee production for the 2024/25 season while noting that ending stocks will see a significant depletion.
Furthermore, Volcafe has downgraded its 2025/26 arabica coffee production estimate due to prolonged drought impacts, forecasting an ongoing deficit for arabica coffee that could intensify in the coming years, suggesting cautious outlooks for future pricing stability.
On the publication date, Rich Asplund disclosed that he holds no positions in any of the mentioned securities, emphasizing that the information provided is strictly for informational purposes according to the Barchart Disclosure Policy.
Overall, coffee prices are facing downward pressure, influenced by anticipated rains in Brazil, rising inventories, and projections of increased global coffee surpluses. However, concerns over supply reductions stemming from poor weather and declining production in critical regions could maintain market volatility. The interplay of these factors suggests a complex outlook for coffee prices in the near future.
Original Source: www.tradingview.com
