Insufficient Rain in Brazil Elevates Coffee Prices Amid Supply Concerns
Coffee prices rose on Wednesday due to insufficient rainfall in Brazil and a strong Brazilian real. Key developments included limited robusta coffee gains from increased inventories, while arabica supply concerns grew as exports fell 12%. Forecasts revealed potential long-term crop damage due to ongoing drought conditions influencing both Brazil and Colombia, despite predictions of a global coffee surplus.
On Wednesday, coffee prices experienced modest increases, attributed to insufficient rainfall in Brazil and a strong Brazilian real. According to Somar Meteorologia, Brazil’s primary arabica coffee region, Minas Gerais, received only 30.8 mm of rain during the week ending March 15, which is 71% of what is historically average. Additionally, the Brazilian real reached a four-and-a-half-month high against the dollar, discouraging local coffee producers from selling their exports.
The rise in robusta coffee prices was somewhat tempered by an increase in supplies, as ICE-monitored inventories of robusta coffee reached a one-week peak of 4,336 lots. In contrast, arabica coffee inventories dropped to a three-and-a-half-week low, totaling 782,648 bags. Despite the supply concerns, higher coffee prices remain a significant factor in the market.
Concerns regarding supply have emerged further as Cecafe reported a 12% year-on-year decline in Brazil’s green coffee exports in February, amounting to three million bags. Furthermore, Brazil’s government crop forecasting agency, Conab, announced a forecast reduction of the 2025/26 coffee crop by 4.4% year-on-year to a three-year low of 51.81 million bags, along with a slight reduction of the 2024 crop estimate.
Conversely, Marex Solutions predicted a widening global coffee surplus for the 2025/26 season, estimating an increase from a 200,000 bag surplus in 2024/25 to 1.2 million bags, which may negatively impact coffee prices. A bearish report from Vietnam indicated a 6.6% year-on-year increase in February coffee exports to 169,000 metric tons, demonstrating Vietnam’s robust position as the leading producer of robusta coffee.
El Niño-induced dry weather patterns may have long-lasting effects on coffee crops in South and Central America. Since last April, Brazil’s rainfall has consistently been below average, particularly damaging coffee trees during the essential flowering stage and thereby diminishing prospects for the 2025/26 arabica crop. The Brazilian natural disaster monitoring center, Cemaden, noted that this is Brazil’s driest season since 1981, affecting Colombia’s recovery as well as it grapples with a drought from the previous year.
Robusta coffee prices are supported by a decline in production. Vietnam’s coffee output for the 2023/24 season is expected to drop by 20% to 1.472 million metric tons, the lowest in four years. Projections suggest that Vietnam’s robusta production for the 2024/25 season might slightly decrease to 27.9 million bags. Recent statistics from Vietnam have indicated a significant year-on-year drop in coffee exports.
Despite some bearish trends, larger global coffee exports could negatively influence prices. Conab reported record-high coffee exports from Brazil, claiming a 28.8% year-on-year increase to over 50 million bags in 2024. Contrastingly, the International Coffee Organization documented a 12.4% decrease in global coffee exports for December year-on-year.
The USDA’s biannual report presented mixed signals for coffee pricing, projecting worldwide coffee production to rise by 4% year-on-year for 2024/25, with expectations of increased arabica production but declining ending stocks reaching a 25-year low. Further revisions to Brazil’s coffee production forecasts from the USDA indicated significant reductions compared to previous estimates, hinting at critical supply issues ahead.
On December 17, Volcafe adjusted its 2025/26 Brazil arabica coffee production prediction downward to 34.4 million bags based on a crop tour that revealed the severity of ongoing drought conditions. They foresee an arabica coffee shortage for 2025/26 expanding beyond the deficit expected for 2024/25, illustrating ongoing challenges in the coffee market.
In summary, coffee prices have shown moderate gains due to insufficient rainfall in Brazil and a robust Brazilian real. However, supply concerns are looming as export numbers decline, and production forecasts are cut. The dynamics in both arabica and robusta coffee markets continue to evolve amidst fluctuating weather patterns and global production estimates, indicating that the coffee market remains under significant scrutiny and volatility. Stakeholders should closely monitor these trends to effectively navigate the challenges ahead.
Original Source: www.nasdaq.com
