Coffee Prices Surge as Brazil Faces Dry Weather Threatening Crops

Coffee prices have risen significantly due to dry weather in Brazil, with arabica reaching a two-week high. Diminished rainfall threatens coffee crop yields ahead of the May harvest, while reduced inventories exacerbate supply concerns. Sales of coffee from the upcoming harvest are outpacing previous years, indicating tightening market conditions. Overall, forecasts point to future shortages, complicating the coffee supply landscape.

Coffee prices have recently surged, with May arabica coffee increasing by 3.71% and robusta coffee rising by 0.66%. This week’s rally was spurred by potential yield losses from diminished rainfall in Brazil, a major coffee-producing country. Somar Meteorologia has reported that ongoing dry and hot conditions in Brazil pose risks to the developing coffee crops as harvest approaches in May.

Brazil’s key arabica growing region, Minas Gerais, experienced significantly low rainfall, reporting only 11.4 mm, or 24% of the historical average, as per Somar Meteorologia. The delayed reporting was due to the Brazilian Carnival holiday, highlighting the urgency of the situation as Brazil is a critical player in the global arabica market.

Declining inventories have further bolstered coffee prices, with both robusta and arabica inventories reaching lows. As of last Friday, ICE-monitored robusta stocks reached a two-month low of 4,247 lots, while arabica stocks dipped to a nine-and-a-quarter month low before recovering slightly. This continuous decrease in inventory levels raises supply concerns.

Moreover, a significant portion of Brazil’s upcoming coffee harvest has been sold prematurely, with 88% sold compared to 79% last year. Although the sales pace of the subsequent 2025/26 crop remains slow, at only 13%, it indicates producers’ hesitance to flood the market with new supplies, widening the supply gap.

In addition to short-term supply concerns, the long-term effects of the dry El Nino weather could permanently affect coffee production in South and Central America. With average rainfall consistently below normal since April of last year, coffee trees have suffered, potentially leading to lower output for the 2025/26 crop. Brazil is currently experiencing its driest weather since 1981.

Robusta coffee prices are similarly impacted by decreased production in Vietnam, where drought conditions have led to a 20% decline in the expected coffee output. Projections indicate minor production reductions for the next marketing year, compounding concerns over robusta supply. However, increases in global coffee exports may temper bullish price expectations.

As Brazil and Vietnam report higher exports in certain recent months, the International Coffee Organization noted a decline in global coffee exports overall. Although Brazil is expected to see record exports this year, these trends illustrate the fluctuating dynamics of coffee supply on the international market.

The USDA’s biannual report provided mixed signals for the coffee market, projecting an increase in global coffee production yet simultaneously forecasting reduced ending stocks. Concerns regarding Brazil’s future production further exacerbate the prevailing supply anxieties in the market, leading to ongoing fluctuations in coffee prices.

Market analysts forecast long-term deficits in arabica production, with estimates indicating significant shortfalls in the coming years. This negative outlook underscores the complex factors affecting coffee supply and prices, indicating that market participants should remain vigilant to shifts in weather patterns and export totals moving forward.

In conclusion, recent weather patterns in Brazil are contributing to a significant rally in coffee prices, primarily due to concerns over crop yields and declining inventories. The premature sale of a substantial portion of Brazil’s coffee harvest, coupled with supply issues in Vietnam, further indicates potential long-term deficits in coffee production. As such, the market remains under pressure, necessitating close observation of ongoing developments in coffee-producing regions.

Original Source: www.tradingview.com