Impact of Insufficient Rain in Brazil on Coffee Prices
Recent increases in coffee prices can be attributed to drought conditions in Brazil and a strong Brazilian real, affecting export behaviors. Despite some gains, robusta coffee prices are pressured by rising inventories and strong Vietnamese exports. Long-term projections suggest potential production deficits for coffee due to consistent adverse weather conditions in key producing regions.
Coffee prices experienced moderate gains on Wednesday, attributed to insufficient rainfall in Brazil and the strengthening of the Brazilian real. Specifically, May arabica coffee saw an increase of 1.89%, while May ICE robusta coffee rose by 1.06%. Reports indicate that Brazil’s primary arabica coffee region, Minas Gerais, received only 30.8 mm of rain, which is 71% of the historical average. The Brazilian real reached a 4-1/2 month high against the US dollar, curbing export sales by local coffee producers.
Robusta coffee price increases were tempered due to a rise in supply, with ICE-monitored inventories reaching a one-week high at 4,336 lots. In contrast, arabica stocks declined to a 3-1/2 week low of 782,648 bags. Concerns over continued supply disruptions are maintaining higher coffee prices. It was noted that Brazil’s green coffee exports fell by 12% year over year in February, totaling 3 million bags. Moreover, Brazil’s government crop forecasting agency, Conab, anticipated that the coffee crop for 2025/26 would decrease to a three-year low of 51.81 million bags.
Conversely, Marex Solutions indicated a potential increase in the global coffee surplus for the 2025/26 season, expanding to 1.2 million bags from the previous year’s surplus of 200,000 bags. Additionally, robusta coffee faced bearish pressures following a report from Vietnam’s General Statistics Office revealing a 6.6% increase in February coffee exports year on year, underscoring Vietnam’s status as the leading producer of robusta beans.
The prolonged dry conditions resulting from last year’s El Nino phenomenon are anticipated to have lasting effects on coffee crops in South and Central America. Rainfall in Brazil has remained below average for over a year, particularly impacting the flowering stage of coffee trees, thereby impairing the 2025/26 arabica coffee crop prospects. Brazil is currently enduring its driest weather since 1981, according to Cemaden, with Colombia also gradually recovering from last year’s drought.
Robusta coffee prices are buoyed by diminishing production levels due to drought conditions in Vietnam, where 2023/24 production fell by 20%. Projections from the USDA FAS suggest a slight decrease in Vietnam’s robusta production for the upcoming 2024/25 marketing year. Reports also confirm a significant decline in Vietnam’s coffee exports, with a 17.1% drop year on year in January.
Conversely, larger global coffee exports present a challenging outlook for prices. Brazil saw a record increase in coffee exports for 2024, rising by 28.8%. However, global exports for coffee were reported to decrease by 12.4% in December compared to the previous year.
The USDA’s recent biannual report provided mixed forecasts for coffee prices, with a projected increase in world coffee production for 2024/25, while simultaneously predicting a decline in ending stocks to a 25-year low of 20.867 million bags. The agency also lowered Brazil’s coffee production estimate for the 2024/25 season.
Forecasts from Volcafe indicated a severe reduction in Brazil’s arabica production estimate for 2025/26 to 34.4 million bags due to the impact of drought. This represents a potential global arabica coffee deficit of 8.5 million bags, continuing a trend of five successive years of deficits.
Rich Asplund reported no positions in any of the mentioned securities on the date of publication. For further information, please refer to the Barchart Disclosure Policy.
In summary, the recent fluctuations in coffee prices reflect the ongoing challenges posed by insufficient rainfall in Brazil and shifting market dynamics. While arabica coffee prices have gained due to these adverse weather conditions, robusta prices are affected by increased supply and competition from Vietnam. The projections from various agricultural agencies indicate potential future production deficits and ongoing global supply challenges.
Original Source: www.nasdaq.com
