Forecasted Rains and Market Pressures Result in Lower Coffee Prices

Coffee prices are facing downward pressure due to forecasted rains in Brazil’s coffee-growing regions, easing supply concerns. An increase in coffee inventories and predictions of a growing global surplus for 2025/26 are contributing to the decline. Adverse weather conditions are projected to impact future coffee production in Brazil and Vietnam, further complicating market dynamics.

In recent trading, May arabica coffee prices have declined by 0.23%, reaching a low not seen in a week and a half, while robusta coffee prices fell by 0.40%. This downward trend is largely attributed to predicted rainfall in Brazil’s Minas Gerais region, where coffee production is paramount, alleviating existing dryness fears and consequently impacting prices negatively.

The rise in, ICE-monitored coffee inventories is further alleviating supply concerns, which also contributes to the falling prices. As of Tuesday, arabica coffee inventories increased to a one-week high with 803,032 bags recorded, while robusta stocks rose to a one-month high of 4,356 lots last Friday.

Moreover, a recent report by Marex Solutions forecasts a substantial increase in the global coffee surplus during the 2025/26 season, expected to reach 1.2 million bags, sharply rising from 200,000 bags in the 2024/25 season. Last Thursday’s report indicated robusta coffee exports from Vietnam rose by 6.6% year-over-year, placing added bearish pressure on robusta prices.

Despite the bearish outlook, Brazilian coffee remains partially supported due to below-normal rainfall levels affecting the country’s coffee sector. Minas Gerais received only 1.1 millimeters of rain in the week ending March 8, significantly below the historical average, thereby supporting coffee prices along with a weakening dollar index.

Waning supply concerns have also emerged, with Cecafe reporting a year-over-year decrease in Brazil’s January green coffee exports by 1.6%, down to 3.98 million bags. Meanwhile, Conab forecasts a continue decline in Brazil’s coffee crop, marking a low for three years at 51.81 million bags. The agency has also revised its estimate for the 2024 crop downward.

The adverse effects of the El Nino phenomenon last year may lead to enduring damage to coffee crops in South and Central America. Brazil has been experiencing the driest conditions since 1981, negatively impacting the flowering stage of coffee trees and diminishing yield prospects, alongside similar struggles faced by Colombia, the second-largest arabica coffee producer.

Robusta coffee prices are experiencing support due to decreasing production levels in Vietnam where the 2023/24 production year showed a 20% drop to 1.472 million metric tons. The USDA projects a slight further dip in Vietnam’s robusta production for the 2024/25 marketing year. Additionally, Vietnam’s 2024 coffee export estimates have been trimmed significantly.

Furthermore, the prospect of increased global coffee exports appears to diminish prices. Brazil’s 2024 coffee exports sharply rose by nearly 29% year-on-year, but the ICO reported a decline in global exports in recent months, reflecting ongoing market pressures.

The USDA’s recent biannual report projected an increase in world coffee production for 2024/25; however, anticipated declines in Brazilian output were noted. Notably, the USDA’s updates concerning Brazil’s coffee production estimates and expected inventories signal continued bearishness in the market through the upcoming seasons.

On December 17, Volcafe revised its production estimates for Brazil’s arabica coffee down to 34.4 million bags for the 2025/26 period, indicating a prolonged impact from the drought. This foreseen deficit hints of wider coffee supply challenges as demand continues.

In summary, coffee prices are under pressure, primarily due to favorable weather conditions predicted for Brazil’s coffee-producing regions and increased global coffee inventories. While bearish forecasts predict a growing global coffee surplus, supply concerns remain present, especially in Brazil and Vietnam, impacting robusta coffee prices. Despite some supportive elements, the overall market outlook appears cautious as forecasts for future coffee production remain sour due to prolonged drought conditions. The European coffee market, particularly, needs to strategize effectively to navigate these ongoing supply challenges.

Original Source: www.tradingview.com