Coffee prices are rising due to unfavorable weather in Brazil and a strong Brazilian real. Production forecasts suggest an increase in coffee output, yet challenges from drought could lead to significant deficits in upcoming years, impacting the market.
Coffee prices are experiencing an upward trend, attributed to dry weather conditions in Brazil and the strengthening of the Brazilian real. Recent reports from Somar Meteorologia indicate that Minas Gerais, a significant arabica coffee region, received 30.8 mm of rainfall, which is only 71% of the expected historical average. As a result, May arabica coffee (KCK25) has increased by 0.76%, while robusta coffee (RMK25) has risen by 0.35%.
The Brazilian real’s strength contributes positively to coffee pricing, and forecasts for world coffee production in 2024/25 suggest an increase of 4.0% year-on-year, amounting to 174.855 million bags. The projection includes a 1.5% rise in arabica production to 97.845 million bags and a notable 7.5% increase in robusta production forecasted at 77.01 million bags. However, the USDA’s Foreign Agricultural Service (FAS) anticipates a significant drop in ending stocks, predicting a reduction of 6.6% to a 25-year low of 20.867 million bags.
Moreover, the USDA’s FAS had previously estimated Brazil’s coffee production for 2024/25 at 66.4 million metric tons, a decrease from the earlier forecast of 69.9 million metric tons. For the 2025/26 marketing year, Volcafe has also revised its Brazil arabica coffee production estimate down to 34.4 million bags due to extensive drought conditions encountered during a recent crop tour, showcasing the seriousness of the agricultural challenges.
Volcafe has forecasted a global deficit in arabica coffee for 2025/26 of 8.5 million bags, which surpasses the 5.5 million bags deficit estimated for 2024/25 and marks the fifth consecutive year of deficits. This ongoing trend in coffee production challenges could have significant implications for the coffee market in the coming years.
In summary, current trends in coffee pricing are influenced by adverse weather conditions in Brazil and the strength of the Brazilian real. While production forecasts for world coffee appear optimistic, challenges such as drought in Brazil signify potential deficits in future coffee supplies. These factors collectively underscore the volatility of the coffee market and the need for close monitoring of agricultural outcomes moving forward.
Original Source: www.tradingview.com
