Coffee prices are rising due to dry weather in Brazil and dollar weakness. Inventory increases are exerting downward pressure, while concerns about global production deficits persist. Analysts project a significant arabica coffee shortfall by 2025/26 as drought conditions affect key regions.
The prices of coffee are experiencing an upward trend due to unfavorable weather conditions in Brazil and a decline in the dollar index. Arabica coffee for May has increased by 1.59%, while robusta coffee has risen by 3.18%. According to Somar Meteorologia, Brazil’s main arabica coffee region, Minas Gerais, received only 1.1 mm of rain, which is merely 2% of the typical average for this period.
A rise in coffee inventories, however, poses a challenge to prices. The ICE-monitored stocks of arabica coffee have reached a one-week high, totaling 799,406 bags, whereas robusta coffee inventories have also risen to a one-month high of 4,356 lots. A report from Marex Solutions anticipates an expansion of the global coffee surplus in the 2025/26 season to 1.2 million bags, a significant increase from the prior year.
Robusta coffee faces bearish pressure as Vietnam’s coffee exports increased by 6.6% year-on-year to 169,000 MT in February. Vietnam is the leading producer of robusta coffee. Ongoing supply concerns are supporting coffee prices, with Brazilian green coffee exports having declined by 1.6% in January, amounting to 3.98 million bags. Additionally, a forecast from Conab predicts decreased yields for Brazil’s 2025/26 crop.
The El Nino weather phenomenon last year has adversely affected coffee crops in South and Central America. Brazil is experiencing its lowest rainfall levels since 1981, negatively impacting coffee tree growth during crucial flowering phases. Colombia is also gradually recovering from drought conditions caused by El Nino.
On account of drought, Vietnam’s coffee production for the 2023/24 crop year saw a 20% reduction to 1.472 million metric tons. The USDA FAS indicates a slight decrease in Vietnam’s robusta production for the next marketing year. Despite this, projections for Vietnamese coffee production in 2024/25 have increased, indicating fluctuating conditions in the market.
Conab reported a 28.8% rise in Brazil’s coffee exports for 2024, reaching a record of 50.5 million bags. However, figures from ICO indicate a 12.4% decline in global coffee exports for December year-on-year. The USDA’s biannual report showed mixed results, with an expected increase in global coffee production yet a significant drop in ending stocks for the upcoming season.
Volcafe has revised its estimates for Brazil’s arabica coffee production downward due to drought severity, projecting a global deficit for arabica coffee of 8.5 million bags in the 2025/26 marketing year. This estimation signals a continued supply challenge for coffee markets.
In summary, coffee prices have risen primarily due to adverse weather conditions and weakened dollar performance, despite increases in global coffee inventories. The ongoing drought in Brazil poses a risk for future coffee crops, while Vietnam’s rising exports and fluctuating production patterns contribute to market complexities. Analysts suggest that supply challenges may lead to further price increases and a prolonged deficit in the arabica segment.
Original Source: www.tradingview.com
