Forecasts for Rain in Brazil Lead to Long Liquidation in Coffee Futures
Forecasts of rain in Brazil prompted a significant drop in coffee futures, with May arabica coffee down by 5.49% and May ICE robusta coffee down by 3.44%. Decreasing inventories, supply concerns, and the impact of El Nino continue to influence coffee prices. Despite expectations of increased global coffee exports, the market is cautious about ongoing environmental impacts on production.
Coffee prices entered a downward spiral today, with May arabica coffee (KCK25) falling by 5.49% and May ICE robusta coffee (RMK25) declining by 3.44%. This drop is attributed to impending rainfall forecasts in Brazil, which have led to long liquidation within coffee futures. Somar Meteorologia indicated that Brazil will transition from dry and hot weather to several days of showers next week, alleviating current dryness.
The robusta market also faced pressure as Vietnam experienced a +6.6% year-over-year increase in Feb coffee exports, totaling 169,000 metric tons. Additionally, consistent rain forecasts for Vietnam’s Central Highlands are further influencing coffee prices. Brazil’s significant arabica coffee-growing region of Minas Gerais received only 11.4 mm of rain, constituting 24% of its historical average, as reported by Somar Meteorologia.
Decreasing inventories are lending some support to coffee prices, as robusta coffee stocks monitored by ICE have reached a two-month low of 4,247 lots. Meanwhile, arabica coffee inventories monitored by ICE have dipped to a nine-and-a-quarter-month low, though they recovered to a two-week high of 809,128 bags last Thursday. A notable percentage of Brazil’s coffee harvest has been sold compared to previous years, with 88% sold by February 11, exceeding last year’s 79% and the five-year average of 82%.
Market reports highlight ongoing supply concerns; Brazil’s green coffee exports decreased by -1.6% year-over-year in January to 3.98 million bags. The state-controlled crop forecasting agency Conab predicted a -4.4% decline in Brazil’s 2025/26 coffee crop. Furthermore, continued dry weather linked to the El Nino phenomenon is raising concerns about long-term damage to coffee crops in South and Central America, impacting Brazil especially hard.
Robusta coffee prices have been buoyed by reduced production, with Vietnam’s output for the 2023/24 crop year decreasing by -20% to 1.472 million metric tons—the lowest in four years. While the USDA estimated a slight dip in Vietnam’s robusta production for 2024/25, other reports suggest an increase in production estimates for the same year.
Despite larger anticipated global coffee exports, the market remains cautious. Conab reported a +28.8% annual rise in Brazil’s 2024 coffee exports. However, the International Coffee Organization indicated a -12.4% decrease in global exports for December. Mixed information from the USDA’s biannual report suggested a projected increase in world coffee production for 2024/25, yet a forecast drop in 2024/25 ending stocks.
Volcafe has revised its 2025/26 Brazil arabica coffee production forecast downward to 34.4 million bags, indicating a more severe drought than initially estimated. The global arabica coffee deficit for 2025/26 is also projected to widen, reflecting ongoing concerns regarding coffee availability.
On the date of publication, Rich Asplund did not hold any positions in the securities mentioned in this article and all information conveyed is for informational purposes only. Additional information can be found through the Barchart Disclosure Policy.
In summary, forecasts of rain in Brazil have initiated significant drops in coffee futures prices, with both arabica and robusta coffee experiencing declines. While supply concerns persist, particularly with reduced inventories and production figures exacerbated by adverse weather conditions, the market also sees some fluctuations in export figures and production estimates. The overall coffee market remains cautious as it navigates between supply risks and weather-related challenges.
Original Source: www.tradingview.com
