Forecasted Rains in Brazil Press Coffee Prices Lower

This article discusses the recent decline in coffee prices, driven by forecasts of rain in Brazil and increased ICE inventories. Projections for a global coffee surplus and declining production estimates, particularly in Brazil, further underscore pressures on the coffee market. Long-term concerns remain due to adverse weather conditions and market dynamics from leading coffee-producing nations, including Vietnam and Colombia.

Coffee prices are experiencing downward pressure, with May arabica coffee seeing a decrease of 0.90 (-0.23%) and May ICE robusta coffee declining by 22 (-0.40%). This drop is primarily attributed to forecasts from Somar Meteorologia, which predict widespread rain in Brazil’s Minas Gerais region, alleviating drought concerns and impacting prices negatively.

Furthermore, an increase in ICE coffee inventories has contributed to the bearish sentiment in the market. As of Tuesday, arabica coffee inventories rose to 803,032 bags, a one-week high. In addition, robusta coffee inventories saw a rise to 4,356 lots, marking a monthly high last Friday.

In a recent report, Marex Solutions projected a global coffee surplus for the 2025/26 season, expected to expand to 1.2 million bags compared to a surplus of 200,000 bags in 2024/25. Concurrently, Vietnam’s General Statistics Office reported an increase in February coffee exports, which rose by 6.6% year-on-year.

Support for coffee prices stems from below-normal rainfall in regions of Brazil. In addition, there are concerns regarding Brazil’s coffee exports, which fell by 1.6% year-on-year in January. The government crop forecasting agency, Conab, has adjusted its estimates, projecting a decrease in Brazil’s coffee crop for 2025/26.

Long-term effects of dry El Nino weather continue to pose risks to coffee crop health in South and Central America, with Brazil experiencing the driest conditions since 1981. Additionally, Colombia is recovering from last year’s drought.

Robusta coffee prices have remained buoyant due to decreased production in Vietnam, where coffee output has plummeted by 20%. Recent estimates suggest a continued decline in robusta production in the approaching 2024/25 marketing year.

New reports indicate an increase in global coffee exports, with Brazil alone seeing a notably high rise in its coffee exports for 2024. However, the International Coffee Organization has noted a decrease in global coffee exports for earlier months this year.

In the biannual report from the USDA, projections showed a potential increase in global coffee production, with arabica expected to rise by 1.5%. However, this also included forecasts of reduced ending stocks at a 25-year low, compounded by reduced production estimates for Brazil.

Volcafe has also adjusted its forecasts, reducing Brazil’s arabica production estimates significantly due to the prolonged drought, anticipating a global arabica coffee deficit for 2025/26.

Rich Asplund, the author of the article, confirms he has no direct or indirect positions in any security mentioned in this article, which is presented for informational purposes only.

In summary, the forecast of rains in Brazil is leading to a reduction in coffee prices, particularly arabica. Increased inventories and projections of a global coffee surplus contribute further to this trend. Additionally, challenges remain due to historically low rainfall and a potential decrease in Brazil’s coffee crop. Consequently, while some factors support market stability, overall bearish indicators dominate the current coffee market landscape.

Original Source: www.tradingview.com