Moderate gains in coffee prices were noted due to dry conditions in Brazil and a stronger Brazilian real. Projections for global coffee production indicate increases, but Brazilian stocks are set to decline, reflecting tight supply conditions. A severe drought is expected to worsen production forecasts for future years.
On Wednesday, coffee prices experienced moderate gains. May arabica coffee (KCK25) increased by 1.89% to close at +7.25, while May ICE robusta coffee (RMK25) rose by 1.06% to +58. The price increases were attributed to dry conditions in Brazil and the strengthening of the Brazilian real.
Brazil’s major arabica coffee-growing region, Minas Gerais, received only 30.8 mm of rain in the week ending March 15, 2023, which is only 71% of its historical average. Projections suggest a 4% increase in global coffee production for 2024/25, totaling 174.855 million bags, with arabica production up by 1.5% to 97.845 million bags and robusta production up 7.5% to 77.01 million bags.
The USDA’s Foreign Agricultural Service (FAS) foresees a decrease in 2024/25 coffee ending stocks, predicting a fall of 6.6% to a 25-year low of 20.867 million bags. This is down from 22.347 million bags in the current 2023/24 season. Furthermore, Brazil’s coffee production for 2024/25 is projected at 66.4 million metric tons, a reduction from the earlier estimate of 69.9 million metric tons.
Looking forward to the 2025/26 marketing year, Volcafe has revised down its estimate for Brazil’s arabica coffee production to 34.4 million bags, marking an 11 million bag decrease from September’s forecast. This downturn reflects existing drought conditions, with Volcafe anticipating a global arabica coffee deficit of 8.5 million bags for 2025/26, widening from a 5.5 million bag deficit for 2024/25, extending a trend of deficits for five consecutive years.
In summary, insufficient rainfall in Brazil is driving up coffee prices, particularly for arabica and robusta varieties. Projections suggest a decrease in both Brazil’s coffee production and global inventories, indicating potential shortages ahead. A prolonged drought may contribute to further supply deficits in subsequent years, specifically for the 2025/26 marketing year. Monitoring these trends will be crucial for coffee market participants going forward.
Original Source: www.tradingview.com
