Coffee Prices Surge Due to Brazilian Rain Deficiencies and Supply Concerns
Coffee prices have seen substantial increases, with arabica and robusta up significantly today. Concerns regarding Brazil’s below-average rainfall are affecting crop yields and supporting prices. Additionally, this year’s early coffee sales and shrinking inventories are contributing to market bullishness. Supply uncertainties, particularly stemming from drought conditions, are further elevating coffee prices and raising concerns about future availability.
Coffee prices have rallied today, with May arabica coffee up by +2.16% to $8.35 and May ICE robusta coffee increasing by +2.21% to $120. This uptick follows a series of gains from Monday, with arabica reaching a 1.5-week high and robusta hitting a 1-week high. Concerns arise from below-average rainfall in Brazil, which may diminish coffee crop yields and sustain higher prices. Reports indicate that Brazil’s primary arabica coffee growing region of Minas Gerais received only 24% of its historical average rainfall last week due to a delayed report from the Brazilian Carnival holiday.
Support for high coffee prices is also derived from shrinking inventories. Last Friday, ICE-monitored robusta coffee inventories fell to a two-month low of 4,247 lots, while arabica coffee inventories dropped to their lowest in over nine months at 758,514 bags before recovering slightly to 809,128 bags last Thursday. Additionally, a notable percentage of Brazil’s coffee harvest has been sold earlier than in previous years, with producers selling 88% of the expected 2024/25 harvest by February 11, surpassing both last year and the five-year average.
Supply concerns continue to bolster coffee prices. In January, Brazil’s green coffee exports decreased by 1.6% year-over-year to 3.98 million bags, and crop forecasts suggest a substantial decline in Brazil’s output. Conab anticipates a 4.4% year-over-year reduction in Brazil’s 2025/26 coffee crop and a 1.1% decrease in the 2024 crop estimate. Ongoing drought conditions linked to El Nino may severely affect coffee production, further reducing expectations for future harvests in Brazil and Colombia.
Robusta coffee prices are also firmly supported due to declining production levels, particularly in Vietnam, which has seen an approximately 20% reduction in output for the 2023/24 crop year. However, robusta production forecasts for 2024/25 suggest a slight decline. Despite this, global coffee exports have increased, with Conab reporting a significant rise in Brazil’s coffee exports, which reached a record 50.5 million bags for 2024. Yet, global coffee exports in late 2022 reflected a slight decline.
According to the USDA’s December report, world coffee production is projected to increase slightly for 2024/25. This includes marginal growth in arabica and robusta production. However, forecasts indicate that ending stocks will fall to a 25-year low, reflecting ongoing supply concerns. Additionally, a drastic cut in Brazil’s arabica coffee production estimate to 34.4 million bags for 2025/26 indicates a deeper crisis. This shift may lead to a net deficit in arabica coffee supply for the fifth consecutive year.
In conclusion, coffee prices are currently experiencing a significant rally fueled by adverse weather conditions impacting Brazil’s coffee crops, declining inventories, and increased sales of upcoming harvests. While the crop forecasts project an increase in global coffee production, supply fears persist due to ongoing drought conditions and reduced output in major producing countries. The coffee market remains volatile, with significant implications for future pricing and availability.
Original Source: www.tradingview.com
