Rain Forecasts in Brazil Drive Coffee Futures Downward
Forecasts for rain in Brazil triggered a steep decline in coffee futures, with May arabica and robusta coffee prices falling significantly. While inventories are tightening, ongoing drought conditions and production concerns persist, impacting future supply and pricing. Mixed signals from global coffee export statistics and altered production estimates continue to affect the market landscape.
Recent forecasts predict rain in Brazil, leading to long liquidation in coffee futures. May arabica coffee (KCK25) decreased by 5.49%, and May ICE robusta coffee (RMK25) fell by 3.44%. Somar Meteorologia indicated that while hot, dry weather persists in Brazil this week, rain is expected next week, alleviating drought conditions.
The robusta market also felt pressure due to a report from Vietnam’s General Statistics Office, which noted a 6.6% year-on-year increase in February coffee exports. Furthermore, forecasts predict daily rain in Vietnam’s Central Highlands, impacting coffee prices.
Brazil’s largest arabica coffee region, Minas Gerais, received only 11.4 mm of rain for the week ending February 22, 24% of its historical average. Rain data was delayed this week due to the Brazilian Carnival holiday. Brazil remains the leading producer of arabica coffee globally.
Shrinking inventories support coffee prices, with ICE-monitored robusta stocks dropping to a two-month low of 4,247 lots last Friday. Additionally, arabica inventories reached a nine-and-a-quarter month low on February 18, although they recently increased to 809,128 bags.
The percentage of Brazil’s coffee harvest sold before reaching the market is higher than in previous years. As of February 11, 88% of the 2024/25 harvest was sold compared to 79% last year, signaling reduced supply. However, sales for the forthcoming 2025/26 crop were slower, indicating a possible supply shortage.
Supply concerns are further elevated as Cecafe reported a 1.6% decline in Brazil’s coffee exports year-on-year for January, totaling 3.98 million bags. Projections from Conab estimate a 4.4% decline in Brazil’s 2025/26 coffee crop to 51.81 million bags.
Long-term droughts attributed to El Nino weather patterns continue to threaten coffee production in South and Central America. Since April, Brazil has experienced consistently low rainfall, which has harmed coffee trees at the flowering stage, impacting future coffee yield potential negatively.
Robusta prices are supported by decreased production, with a 20% drop in Vietnam’s coffee output for 2023/24 estimated at 1.472 MMT. The USDA FAS anticipates a slight reduction in the next year’s robusta production.
Bearish conditions arise from global coffee export statistics. Brazil reported a 28.8% year-on-year rise in 2024 coffee exports. However, global coffee exports fell overall by 12.4% year-on-year in December.
The USDA’s December biannual report showed mixed signals. Globally, coffee production is expected to rise by 4.0% year-on-year, with arabica and robusta production also increasing. However, coffee inventories are projected to decline to a 25-year low, indicating supply concerns.
Volcafe has lowered its estimates for Brazil’s arabica coffee production for the 2025/26 marketing year to 34.4 million bags, noting significant drought impacts. It forecasts a mounting deficit for arabica coffee, exacerbating supply challenges in the coming years, marking the fifth consecutive year of deficits.
Forecasts of rain in Brazil are leading to significant reductions in coffee futures as traders react to long liquidation. Despite some positive inventory news, ongoing drought conditions in Brazil and declining crop production estimates raise concerns about future coffee supply. Global coffee export data and changing production estimates further influence market dynamics, as the industry anticipates tighter supplies and potential price volatility.
Original Source: www.tradingview.com
