Impacts of Weather Forecasts on Brazilian Coffee Futures
Forecasts for rain in Brazil have triggered long liquidation in coffee futures, with May arabica down 5.49% and robusta down 3.44%. Brazil’s coffee production faces challenges from prolonged drought, as indicated by low inventory levels and projected declines for future crops. Additionally, concerns about supply persist, shaped by export fluctuations and weather patterns.
Reports of impending rain in Brazil have resulted in notable declines in coffee futures, with May arabica coffee futures decreasing by 5.49% and May robusta coffee futures by 3.44%. Meteorological forecasts indicate an end to the hot, dry weather, anticipating rain next week, which may ameliorate current drought conditions.
The pricing pressure on robusta coffee was exacerbated by a report from Vietnam’s General Statistics Office, which announced a year-over-year increase of 6.6% in coffee exports for February. Additionally, the expectation of daily rain in Vietnam’s Central Highlands is further contributing to declining coffee prices.
Somar Meteorologia indicated that Brazil’s prominent arabica-growing region, Minas Gerais, received only 11.4 mm of rain, which constitutes 24% of the historical average for the week ending February 22. This report was delayed due to the Brazilian Carnival holiday, highlighting Brazil’s position as the largest producer of arabica coffee globally.
The reduction of coffee inventories also supported coffee prices despite the current decline. Data shows that ICE-monitored robusta coffee inventories have reached a two-month low of 4,247 lots, while arabica inventories have recently fallen to a 9-1/4 month low of 758,514 bags, with a slight recovery to 809,128 bags.
A notable factor in the coffee market is that a higher percentage of Brazil’s coffee harvest has already been sold compared to prior years. By February 11, 88% of the 2024/25 coffee harvest had been sold, outpacing last year’s figure of 79% and the five-year average of 82%. However, sales for the 2025/26 crop remain sluggish at just 13%.
Concerns regarding supply continue to impact prices, particularly as Brazil’s January green coffee exports decreased by 1.6%. Furthermore, Conab predicts a decline in Brazil’s coffee crop for 2025/26, estimating a 4.4% reduction to a three-year low of 51.81 million bags, alongside a 1.1% downward revision of the 2024 forecast from 54.8 million to 54.2 million bags.
Long-term weather conditions, particularly the impacts of El Nino, present a challenge for coffee crops in South and Central America. Brazil has recorded the driest conditions since 1981, hindering the growth of coffee plants and diminishing the prospects for the 2025/26 arabica crop. Similarly, Colombia is gradually recovering from the effects of a drought influenced by El Nino.
In the context of robusta coffee, production has been significantly affected by reduced outputs from Vietnam due to severe drought, resulting in a 20% decrease in coffee production to 1.472 million metric tons, the smallest yield in four years. Projections for the upcoming marketing year indicate a slight production decline to 27.9 million bags.
While increased global coffee exports can be bearish for prices, Brazil’s export forecasts show a substantial year-over-year increase. The USDA’s upcoming reports also reflect a projected global coffee production increase of 4% in 2024/25, while forecasting a significant decrease in ending stocks.
Volcafe has adjusted its 2025/26 Brazil arabica coffee production estimate downward due to severe drought conditions, projecting a continued global deficit for arabica coffee. This trend signals ongoing supply concerns amid fluctuating weather patterns, affecting future production and market stability.
In conclusion, recent forecasts for rain in Brazil have led to notable reductions in coffee futures, particularly in the arabica and robusta segments. While inventory pressures and increased sales from Brazil indicate potential supply issues, ongoing drought conditions and the effects of El Nino pose long-term challenges to coffee production. The coffee market is currently facing a complex intersection of weather impacts, export statistics, and production forecasts, all of which will influence future pricing dynamics.
Original Source: www.tradingview.com
