Coffee Prices Rise Amid Concerns of Reduced Crop Yields in Brazil
Coffee prices increased on Tuesday, supported by below-normal rainfall in Brazil affecting crop yields. Diminishing inventories and a higher percentage of sold harvests also contribute to price support. Future supply fears persist due to ongoing drought conditions and reduced production forecasts, leading to concerns about market stability and potential price volatility.
On Tuesday, coffee prices rose further from Monday’s gains, with May arabica coffee increasing by 3.04% and reaching a 1-1/2 week high, while robusta coffee rose by 2.90% and hit a 1-week high. This price increase is primarily attributed to below-normal rainfall in Brazil, which has potential implications for coffee crop yields. According to Somar Meteorologia, the Minas Gerais region, which produces the most arabica coffee, received only 11.4 mm of rain, representing only 24% of the historical average for the week ending February 22.
Additionally, diminishing coffee inventories add to the upward pressure on prices. Last Friday, robusta coffee stocks monitored by ICE fell to a two-month low of 4,247 lots, while arabica inventories decreased to a 9-1/4 month low of 758,514 bags before recovering to a two-week high of 809,128 bags by last Thursday. A notable indicator of supply decrease is that Brazilian producers reported selling 88% of the 2024/25 harvest, higher than last year’s 79% and above the five-year average of 82%.
Concern over future coffee supplies continues to drive prices. Brazil’s coffee export figures show a -1.6% year-on-year decrease in green coffee exports, and recent forecasts indicate a decline in production for the upcoming 2025/26 crop year. Analysts expect Brazil’s harvest to drop by -4.4% to a three-year low of 51.81 million bags. The impacts of last year’s dry El Nino weather may persist, further compromising coffee crops across South and Central America.
Moreover, the Vietnamese coffee market is grappling with similar issues. The 2023/24 crop saw a -20% reduction in robusta coffee output, the smallest yield in four years. Projections indicate a slight decrease in Vietnam’s robusta production for the 2024/25 marketing year, further influencing global coffee prices. However, increases in export rates, highlighted by Brazil’s record coffee exports, may counterbalance some of these price pressures.
The USDA’s market reports reflect a mixed outlook, projecting a 4% rise in global coffee production for 2024/25, while foreseeing a decrease in Brazil’s coffee output estimates. For the next marketing year of 2025/26, projections hint at a growing deficit in arabica coffee supplies, suggesting that the current market situation is likely to remain unstable due to weather factors and supply chain issues affecting production.
In summary, the continuing rise in coffee prices is largely influenced by adverse weather conditions in Brazil, leading to reduced yields and lower inventories. Significant portions of both arabica and robusta supplies have already been sold, heightening concerns about forthcoming supply shortages. As markets react to fluctuating export rates and varying global production forecasts, stakeholders should prepare for potential continued volatility in coffee pricing.
Original Source: www.tradingview.com
