Coffee Prices Experience Decline Amid Rain Forecasts in Brazil

Coffee prices fell from projections of rain in Brazil, which may ease dry conditions affecting production. A rise in coffee inventories, Vietnamese export growth, and continued supply concerns are influencing market dynamics. The higher percentage of Brazil’s coffee harvest sold also suggests reduced availability, while global production forecasts remain mixed, indicating potential challenges ahead.

On Friday, May arabica coffee (KCK25) saw a decline, closing down by -2.75 (-0.71%), while May ICE robusta coffee (RMK25) fell by -74 (-1.36%). The drop in coffee prices was attributed to forecasts indicating rain in Brazil, with Somar Meteorologia predicting a shift from dry weather to several days of showers, alleviating drought conditions.

Additionally, robusta coffee prices faced downward pressure due to a report from Vietnam’s General Statistics Office, which indicated a year-over-year increase of +6.6% in February coffee exports to 169,000 metric tons. The anticipated rain in Vietnam’s Central Highlands, the nation’s primary coffee-growing area, is also affecting robusta prices.

A rise in coffee inventories contributed to the bearish sentiment in the market, as ICE-monitored robusta coffee inventories reached a one-month high of 4,356 lots. Conversely, arabica inventories decreased to a 9-1/4 month low of 758,514 bags but have recently rebounded to a two-week high of 809,128 bags.

Reports indicated that Brazil’s Minas Gerais region, known for arabica coffee cultivation, received 11.4 mm of rain in the week ending February 22, equating to 24% of the historical average. This rain report faced delays due to the Brazilian Carnival holiday.

There is, however, a positive development as a higher percentage of Brazil’s coffee harvest has already been sold compared to previous years. As of February 11, Safras & Mercado reported that producers sold 88% of the 2024/25 harvest, outperforming last year’s figures and the five-year average.

Concerns regarding supply continue to escalate, with Cecafe reporting that Brazil’s January green coffee exports decreased by -1.6% year-over-year. Moreover, Conab revised its estimates, predicting a -4.4% decline in Brazil’s 2025/26 coffee production to a three-year low.

The prolonged effects of dry weather caused by El Nino have negatively impacted coffee crops in South and Central America, with Brazil experiencing its driest conditions since 1981. Colombia is also in the process of recovering from El Nino-related drought effects.

Robusta coffee prices have been supported by reduced production levels in Vietnam, which saw a -20% decrease in its coffee yield for the 2023/24 crop year. The USDA anticipates a slight dip in Vietnam’s robusta production for 2024/25, alongside a reported decrease in exports.

While larger global coffee exports typically bear downward implications for prices, Conab reported a record increase in Brazil’s 2024 coffee exports by +28.8% year-over-year, contrasting with the ICO’s report of a global coffee export decrease.

The USDA’s biannual report projected a mixed outcome for coffee prices, with a forecasted global coffee production increase for 2024/25. However, the projected ending stocks signify a decline to their lowest level in 25 years, reflecting ongoing concerns about market supply.

Volcafe has lowered its estimate for Brazil’s 2025/26 arabica coffee production, reflecting the prolonged impact of the drought. The report indicates a global arabica coffee deficit, widening the gap for 2025/26 compared to previous years.

At the time of publication, Rich Asplund held no positions in the securities mentioned within this article. All content is intended solely for informational purposes, aligned with Barchart’s disclosure policy.

Coffee prices experienced moderate losses due to forecasts predicting rain in Brazil, easing dry conditions that have adversely affected coffee production. Although robusta coffee prices suffered from increased Vietnamese exports and anticipated rainfall, the higher percentage of Brazil’s coffee harvest sold suggests a tightening supply. Combined with broader global production outlooks, these factors continue to shape the market dynamics for coffee prices going forward.

Original Source: www.tradingview.com