Insufficient Rain in Brazil Affects Coffee Prices and Market Dynamics
Recent gains in coffee prices have been driven by drought conditions in Brazil and a strong Brazilian real, alongside reports of reduced production and export challenges. However, forecasts indicate a widening global coffee surplus, potentially impacting prices negatively in the future.
Coffee prices experienced moderate gains on Wednesday, highlighted by a rise in May arabica coffee by 1.89% and May ICE robusta coffee by 1.06%. The increase can largely be attributed to dry weather conditions in Brazil and a strong Brazilian real, which reached a 4-1/2 month high against the dollar, discouraging export activities by producers. Notably, Brazil’s key arabica coffee region recorded rainfall at only 71% of the historical average.
Despite the gains in arabica prices, robusta coffee’s increase was limited due to a rise in inventory levels, reaching a one-week high of 4,336 lots. In contrast, arabica coffee inventories fell to a 3-1/2 week low of 782,648 bags. Supply concerns remain dominant, as reported by Cecafe, indicating a year-on-year decline of 12% in Brazil’s February green coffee exports to 3 million bags. Additionally, forecasts released by Conab project a 4.4% decrease in Brazil’s 2025/26 coffee crop to 51.81 million bags, marking a three-year low.
In contrast to the Brazilian coffee outlook, Marex Solutions posited that a global coffee surplus will expand significantly in the 2025/26 season, worsening to 1.2 million bags from just 200,000 bags in 2024/25. Furthermore, robusta coffee prices face downward pressure from increased exports reported by Vietnam, the leading producer of robusta beans, rising by 6.6% year-on-year. The prolonged dry spells resulting from last year’s El Nino affect coffee crop health across South and Central America, particularly impacting Brazil’s arabica production potential.
Vietnam also faces production setbacks due to drought, with a notable 20% reduction in coffee output for the 2023/24 crop year. Projections from the USDA indicate a slight dip in Vietnam’s robusta production for the upcoming year and significant decreases in coffee exports. Global coffee exports have mixed signals; while Brazil’s exports surged by nearly 29%, international competition remains fierce with declines reported by the ICO.
The most recent USDA forecast revealed world coffee production is expected to rise by 4% for 2024/25, though with lower anticipated stocks. Brazil’s production estimates have been significantly cut, with predictions pointing towards a continuing underproduction and a projected global arabica deficit for the 2025/26 marketing year up to 8.5 million bags.
Overall, despite some optimism surrounding price increases stemming from Brazilian weather impacts and reduced production forecasts, the market faces conflicting reports on supply and demand that will influence coffee pricing trends going forward.
In summary, coffee prices are currently buoyed by unfavorable weather conditions in Brazil and a stronger national currency that limits exports. Additionally, projections indicating reduced production volumes from both Brazil and Vietnam highlight ongoing concerns about future supply levels. However, the expected global coffee surplus in upcoming seasons may counterbalance the current price increases. Given these dynamics, the coffee market remains uncertain and influenced by both domestic and international factors.
Original Source: www.nasdaq.com
