Today, coffee prices increased with arabica and robusta both reaching new highs fueled by concerns over Brazil’s below-average rainfall and declining inventories. Brazil’s early coffee sales signal limited supply, while ongoing drought conditions create uncertainty for future production. Despite higher global coffee exports, diminishing supply forecasts are likely to keep prices elevated.
Coffee prices continued to rise today, with May arabica coffee climbing +8.35 (+2.16%) and May ICE robusta coffee up +120 (+2.21%). This uptick follows Monday’s gains, placing arabica at a 1-1/2 week high and robusta at a 1-week high. Concerns over below-normal rain in Brazil are influencing prices, as insufficient rainfall could negatively impact coffee yields. Somar Meteorologia indicated that Minas Gerais, Brazil’s largest arabica-producing region, received only 11.4 mm of rain last week, which is 24% of the historical average, exacerbating the supply fears.
Additionally, declining inventories are contributing to higher prices. As of last Friday, ICE-monitored robusta coffee inventories reached a two-month low at 4,247 lots, while arabica inventories minimized to a 9-1/4 month low of 758,514 bags on February 18 but have recovered to 809,128 bags this past Thursday. This tightening supply is further accentuated by the early sales of Brazil’s 2024/25 coffee harvest, with 88% already sold, compared to 79% last year and the 5-year average of 82%.
Concerns over supply levels persist, supported by Cecafe’s report indicating a -1.6% annual decline in Brazil’s green coffee exports in January, totaling 3.98 million bags. Brazil’s crop forecasting agency, Conab, also anticipated a -4.4% decline in the 2025/26 coffee crop output, estimating it at a three-year low of 51.81 million bags. These forecasts highlight ongoing risks to coffee production exacerbated by the ongoing drought.
The dry El Nino conditions of the previous year may inflict longer-term damage on coffee crops in South and Central America due to consistently lower rainfall since last April. Brazil has been experiencing its driest weather in over four decades, negatively affecting coffee trees during critical growth phases. Colombia, the second-largest arabica producer, is still gradually recovering from the drought’s impact.
Robusta coffee prices are being supported by reduced production in Vietnam, with coffee outputs dropping by -20% to 1.472 million metric tons for the 2023/24 crop year. The USDA FAS has projected a slight decrease for the 2024/25 marketing year, anticipating robusta production to decline to 27.9 million bags. Vietnam’s coffee exports also decreased by -17.1% year-on-year, signaling a tighter market.
While reports of higher global coffee exports may weigh on prices moving forward, recent data suggests that Brazil’s coffee exports for 2024 surged +28.8% year-on-year, totaling a record 50.5 million bags. However, global coffee exports for December fell -12.4% annually, indicating some inconsistencies in supply dynamics. Overall, various forecasts indicate uncertainty for future coffee prices in light of mixed production projections.
The USDA’s recent analysis was mixed, projecting a 4.0% global production increase for the 2024/25 season. However, it also indicated a -6.6% drop in global ending stocks to a 25-year low. Brazil’s forecast for 2024/25 production was also downgraded, suggesting a continuing trend of reduced supply, which can elevate market prices.
In summary, coffee prices are rallying due to insufficient rainfall in Brazil, impacting crop yields and tightening inventories. The significant early sales of the coffee harvest indicate limited future supply. Continuous drought conditions in Brazil and Colombia exacerbate these issues. Although global export numbers show an increase, concerns about declining production will likely keep coffee prices elevated in the near term, shaping market expectations.
Original Source: www.tradingview.com
