Coffee prices are rising due to dry weather in Brazil jeopardizing crop yields. Reports indicate that Brazil’s rainfall is significantly below average, which could lower coffee production. Diminishing inventories further support price increases, alongside accelerated sales of the current coffee harvest compared to previous years. Concerns over long-term supply issues remain pivotal for market stability.
Coffee prices are experiencing a notable increase, with May arabica coffee rising by 3.71% to $14.80, and robusta coffee increasing by 0.66% to $37. This upswing follows reports of below-average rainfall in Brazil, which could potentially diminish coffee yields as the crop approaches harvest time in May. Somar Meteorologia has indicated that persistent dry and hot conditions are likely to adversely affect coffee crops at this critical stage of development.
According to Somar Meteorologia, Brazil’s key arabica coffee region, Minas Gerais, received only 11.4 mm of rain during the week ending on February 22, equating to just 24% of the historical average rainfall. This report was delayed due to the Brazilian Carnival holiday. As the largest arbica coffee producing nation globally, Brazil’s crop conditions remain crucial to market prices.
Compounding these challenges are diminishing inventories, as evidenced by ICE-monitored robusta coffee stock falling to a two-month low of 4,247 lots. Moreover, arabica coffee inventories are reported at a 9 ¼ month low of 758,514 bags as of February 18; they have since slightly recovered to a two-week high of 809,128 bags.
Notably, a larger proportion of Brazil’s coffee harvest has already been sold compared to previous years, which could further tighten supply. As of February 11, producers had sold 88% of Brazil’s 2024/25 harvest, surpassing last year’s sales of 79% and the five-year average of 82%. Conversely, sales of the 2025/26 crop remain sluggish at only 13% sold, considerably below the four-year average of 22%.
Continued concerns regarding supply levels are also influencing coffee prices. Recent data from Cecafe indicates that Brazil’s green coffee exports in January decreased by 1.6% year-on-year to 3.98 million bags. Additionally, Conab, Brazil’s government crop forecasting agency, has projected a 4.4% year-on-year decline in the Brazilian coffee crop for 2025/26, estimating it at a three-year low of 51.81 million bags.
Persistent dry conditions since April 2022 have adversely affected Brazil’s arabica coffee trees, hindering flowering stages crucial for crop development. According to Cemaden, Brazil is experiencing its most severe drought since 1981. Similarly, Colombia, the world’s second-largest arabica producer, is recovering from last year’s drought exacerbated by El Nino.
Robusta coffee prices have also been bolstered by declines in production. Vietnam’s robusta coffee output for the 2023/24 crop year has decreased by 20% to 1.472 million metric tons, representing the smallest yield in four years. Projections from the USDA indicate a slight decline in Vietnam’s robusta production to 27.9 million bags in the upcoming marketing year.
While the anticipated increase in global coffee exports may exert downward pressure on prices, recent reports have shown Brazil’s coffee exports for 2024 rising significantly by 28.8% year-on-year. Reports also noted that Vietnams’ January coffee exports increased, yet there were declines in global coffee exports experienced in December and from October to December.
The USDA’s biannual report suggested a mixed outlook for coffee prices, projecting an overall world coffee production increase of 4% to 174.855 million bags for 2024/25, including a proposed rise in arabica and robusta production. However, expected stock declines due to falling inventory levels raise potential concerns for coffee supply.
Additionally, Volcafe has revised down its estimate for Brazil’s arabica coffee production for the 2025/26 marketing year to 34.4 million bags, nearly an 11 million bag reduction from previous estimates. This suggests an impending global arabica coffee deficit, widening the gap compared to previous years, a situation exacerbated by severe drought conditions observed in Brazil.
The coffee industry is currently facing challenges driven by adverse weather conditions and diminishing inventories, particularly in Brazil. With the potential for reduced yields and increased selling of current harvests, coffee prices are experiencing upward pressure. Continued monitoring of crop conditions and exports, alongside global production forecasts, will be crucial in assessing future price trajectories. The evolving scenario demands close attention from stakeholders within the coffee market.
Original Source: www.tradingview.com
