Coffee Prices Surge Amid Supply Concerns and Brazilian Weather Challenges

Coffee prices, particularly arabica and robusta, have risen due to reduced rainfall in Brazil and shrinking inventories. As of February 11, 88% of Brazil’s coffee harvest had been sold. Concerns over supply due to drought conditions continue to influence prices, with forecasts indicating potential deficits in the upcoming marketing years.

In the latest market update, May arabica coffee (KCK25) has seen an increase of +8.35 (+2.16%), while May ICE robusta coffee (RMK25) has risen by +120 (+2.21%). Today’s growth builds upon gains from Monday, with arabica coffee reaching a 1-1/2 week high, and robusta coffee attaining a 1-week high, largely due to concerns over reduced yields from below-average rainfall in Brazil, the largest arabica coffee producer globally.

According to Somar Meteorologia, Brazil’s Minas Gerais region received significantly low rainfall amounts, measuring only 11.4 mm during the week ending February 22, which is just 24% of the historical average. The report was affected by delays related to the Brazilian Carnival holiday, further highlighting the impact of weather on coffee crop yields.

Diminishing inventory levels have provided additional support to coffee prices, as ICE-monitored robusta coffee stocks recently fell to a two-month low of 4,247 lots. Arabica coffee inventories also dropped to a 9-1/4 month low but have seen a slight recovery, rising to 809,128 bags last Thursday, reflecting fluctuating supply conditions in the market.

In a positive development for producers, Brazil’s coffee harvest sales have accelerated compared to previous years. As per Safras & Mercado, as of February 11, 88% of Brazil’s 2024/25 coffee harvest had been sold, outpacing last year’s figure of 79% and the five-year average of 82%. However, sales have lagged for the 2025/26 crop, with only 13% sold, indicating a cautious approach from producers regarding future supply.

Worries over supply disruptions continue to influence coffee prices. A report from Cecafe noted that green coffee exports from Brazil had declined by -1.6% year-on-year for January, totaling 3.98 million bags. Moreover, Conab, Brazil’s crop forecasting agency, anticipates a -4.4% reduction in the 2025/26 coffee crop to a 3-year low of 51.81 million bags.

The lingering effects of last year’s El Nino are projected to cause significant long-term damage to coffee crops in South and Central America. Since April, Brazil has encountered the driest weather conditions since 1981, adversely affecting coffee tree growth during the crucial flowering period. Colombia, which is the second-largest arabica producer, is slowly recovering from last year’s drought conditions.

Robusta coffee prices are similarly impacted by decreased production levels, particularly in Vietnam, where drought conditions have caused a -20% decline in the 2023/24 coffee crop, marking the lowest output in four years. The USDA forecasts a slight dip in Vietnam’s robusta production in the upcoming 2024/25 marketing year.

On a more bearish note, news of increased global coffee exports has emerged. Conab reported a +28.8% rise in Brazil’s coffee exports for 2024, alongside Vietnam’s reported increase in January coffee exports. However, the International Coffee Organization revealed a year-on-year decline in December global coffee exports, indicating contrasting trends in production and market demand.

The USDA’s December 18 biannual coffee report presented mixed signals. While it projected a +4.0% increase in world coffee production for 2024/25, it also forecasted a -6.6% decline in ending stocks, reaching a 25-year low. Notably, Brazil’s coffee production estimates were also lowered due to ongoing drought conditions, indicating a tightening of supply.

Moving forward, Volcafe’s estimates for the 2025/26 marketing year show a significant downward revision in Brazil’s arabica coffee production due to extended drought conditions. The projected global arabica coffee deficit is expected to widen, compounding existing supply concerns in the market.

In summary, coffee prices are experiencing significant support from reduced rainfall in Brazil, diminishing inventory levels, and accelerated sales of current harvests. However, continued fears of supply disruptions due to adverse weather conditions could sustain these price increases. The outlook for coffee production remains cautious, indicating potential deficits in global supply as producers navigate ongoing challenges.

Original Source: www.tradingview.com