Coffee prices have rallied due to dry weather in Brazil affecting crop yields, with arabica and robusta coffee prices increasing significantly. Dwindling inventories and early harvest sales have tightened supply, while adverse weather forecasts suggest potential shortages for upcoming seasons. Traders must remain cautious amid ongoing supply concerns and fluctuating market conditions.
Coffee prices have experienced a significant rally recently, with May arabica coffee increasing by 3.71% and May ICE robusta coffee climbing by 0.66%. These price increases are attributed to below-normal rainfall in Brazil, which may adversely affect coffee crop yields. According to Somar Meteorologia, continuing dry and hot weather could damage coffee crops in Brazil, particularly as they approach the critical harvest period in May.
Recent reports indicated that Brazil’s predominant arabica coffee-growing region of Minas Gerais received only 24% of its historical average rainfall last week. This lack of precipitation poses risks for the crops’ final developmental stages. Additionally, Brazil holds the title as the world’s largest producer of arabica coffee, which further emphasizes the impact of these weather conditions on global coffee prices.
Support for coffee prices has been reinforced by dwindling inventories. As of last Friday, ICE-monitored robusta coffee inventories reached a two-month low. Meanwhile, arabica coffee inventories fell to a nine-and-a-quarter-month low but showed some recovery by the following week, reflecting the fluctuations in coffee supply and demand.
Moreover, a greater percentage of Brazil’s coffee harvest has already been sold compared to previous years, indicating a tighter supply. Reports suggest that by February 11, 88% of Brazil’s 2024/25 coffee harvest was sold, surpassing last year’s rate and the five-year average. In contrast, the 2025/26 crop has seen slower sales, raising concerns about future supply inadequacies.
The persistent supply concerns have led to bullish conditions for coffee prices. Data indicates a decline in Brazil’s green coffee exports year-on-year, alongside a forecasted decrease in the forthcoming coffee crops due to adverse weather conditions. Brazil has been experiencing severe drought since April 2022, impacting flowering stages and consequently affecting the coffee yields.
As for robusta prices, they are being bolstered by a reduction in production due to drought conditions in Vietnam. The USDA projects a minor decline in Vietnam’s robusta production for 2024/25, further constraining supply in the market. However, despite a robust increase in Brazil’s coffee exports this year, recent data has shown a general decline in worldwide coffee exports, indicating a mixed global outlook.
Although the USDA’s projections are somewhat optimistic with an overall increase in world coffee production forecasted, diminished stocks point to enduring supply pressures in the coffee market. Recent adjustments to forecasts for Brazilian coffee production further highlight potential supply shortages for the upcoming seasons.
In conclusion, coffee prices have surged largely due to adverse weather conditions in Brazil impacting yields. The dual pressures of diminishing inventories and an increase in the percentage of early coffee harvest sales contribute to the current bullish sentiment for coffee prices. With ongoing concerns about future coffee supply amidst changing climate conditions, market vigilance remains crucial.
In summary, coffee prices have risen significantly due to adverse weather affecting Brazil’s coffee crops, compounded by decreasing inventories and a higher percentage of early sales of the harvest. As Brazil deals with historically low rainfall and forecasts of reduced coffee production, industry participants must remain alert to the implications these factors hold for future supply and pricing dynamics in the coffee market.
Original Source: www.tradingview.com
