Impact of Below-Normal Rain on Coffee Prices in Brazil
Coffee prices are rising due to below-average rainfall in Brazil, particularly impacting arabica coffee yields. Current data show declining inventories and a significant portion of the coming harvest has already been sold, raising concerns over supply. Projected impacts of drought conditions and altered production estimates signal potential long-term challenges for the coffee market.
Coffee prices have risen due to below-average rainfall in Brazil, which is projected to adversely affect coffee crop yields. Reports indicate that Minas Gerais, Brazil’s largest arabica-producing region, received only 11.4 mm of rain, constituting 24% of its historical average. This situation, coupled with reduced coffee stocks, has bolstered prices significantly, with May arabica coffee up by 2.63% and May robusta coffee increasing by 0.58%.
Diminishing coffee supplies have been underscored by a fall in ICE-monitored inventories, which recently reached a two-month low of 4,247 lots for robusta and a 9-1/4 month low of 758,514 bags for arabica. Though arabica inventories recovered slightly to 809,128 bags, concerns over available supplies persist. Additionally, a notable portion of Brazil’s coffee harvest has been sold, as 88% of the 2024/25 crop has been sold, surpassing both last year’s and the five-year average figures.
Supply concerns continue to exert upward pressure on prices, as evidenced by a decline in Brazil’s green coffee exports, which fell by 1.6% year-over-year to 3.98 million bags as of January. Furthermore, Brazil’s official crop forecasts have been downgraded, suggesting declines of 4.4% year-over-year for the 2025/26 crop and a 1.1% reduction for the 2024 crop.
The adverse impact of persistent dry conditions, attributed to El Nino, threatens longer-term coffee production in South and Central America. Reports detail that Brazil is experiencing its driest weather since 1981, severely impacting coffee trees during the critical flowering stage. Likewise, Colombia, the second-largest arabica producer, is gradually recovering from last year’s drought but remains affected by similar challenges.
Robusta coffee prices have also been supported by declining production in Vietnam, where drought has led to a 20% drop in coffee output during the 2023/24 crop year. Projections indicate that Vietnam’s robusta production will continue to decrease slightly in the upcoming marketing year. Recent data suggest that robusta exports from Vietnam have experienced a significant year-over-year decrease.
Conversely, global coffee export figures present a mixed outlook, with Brazilian exports projected to rise by 28.8% year-over-year to a record level, while global Dec exports have decreased by 12.4% year-over-year. The USDA’s mixed report anticipates a slight increase in world coffee production for 2024/25 but indicates a notable decline in Brazil’s output compared to previous estimates, raising concerns over future inventories.
Lastly, projections for the 2025/26 marketing year suggest a widening global arabica deficit, exacerbated by the ongoing drought conditions in Brazil. Volcafe has revised its estimates downward, highlighting the severity of the impacts of prolonged dry weather on production capability and suggesting a significant projected deficit at 8.5 million bags, marking the fifth consecutive annual shortfall in supply.
In summary, the combination of below-normal rainfall in Brazil and diminishing coffee supplies has significantly affected coffee prices, pushing them higher. While exports are projected to increase, forecasts indicate a decline in production due to drought conditions in key coffee-producing regions. The overall outlook remains cautious, with expectations for continued supply challenges likely influencing the market for the foreseeable future.
Original Source: www.tradingview.com
