Coffee Prices Rise Amid Drought in Brazil and Strong Brazilian Real

Coffee prices are rising due to dry conditions in Brazil and a strong real, with forecasts predicting a moderate increase in global production for 2024/25. However, anticipated declines in Brazil’s production and decreasing coffee inventories present challenges for the market. Volcafe has reduced its production estimates due to drought conditions.

Coffee prices have shown an upward trend, influenced by adverse weather conditions in Brazil and the strength of the Brazilian real. According to market data, May arabica coffee prices have risen by 2.05% and May ICE robusta coffee prices have increased by 1.89%. Reports indicate that Minas Gerais, Brazil’s largest arabica coffee region, received only 71% of the average rainfall, emphasizing the potential impact on crop yields.

The Brazilian real’s strength has contributed to optimistic forecasts for global coffee production in the 2024/25 marketing year, which is expected to rise by 4% year-on-year, totaling approximately 174.855 million bags. Specifically, arabica production is projected to increase by 1.5% to 97.845 million bags, while robusta production may see a 7.5% increase, reaching 77.01 million bags. However, the USDA’s Foreign Agricultural Service (FAS) indicates that ending stocks for 2024/25 may drop by 6.6%, reaching a 25-year low.

Changes in production estimates have emerged from various agencies. For instance, Volcafe recently reduced its Brazil arabica coffee production estimate for the 2025/26 marketing year to 34.4 million bags, reflecting a significant decline over previous forecasts due to ongoing drought conditions. Furthermore, Volcafe anticipates a global deficit of 8.5 million bags for the 2025/26 arabica coffee market, extending over five consecutive years of deficits.

In summary, coffee prices are experiencing a moderate increase driven by dry weather conditions in Brazil and a strong Brazilian real. While forecasts suggest a rise in global production for the 2024/25 marketing year, diminishing ending stocks and revised production estimates indicate potential challenges ahead, particularly for Brazil’s coffee industry. The outlook remains cautiously optimistic, pending developments in weather and market conditions.

Original Source: www.tradingview.com