Coffee Prices Surge Amid Brazilian Drought and Strong Currency

Coffee prices have increased due to dry conditions in Brazil and the strong Brazilian real. Projections for 2024/25 indicate a rise in global coffee production along with declining inventories. Estimates for Brazil’s future arabica coffee production have been cut significantly due to severe drought, suggesting ongoing challenges in the coffee market.

Coffee prices have experienced a notable increase, supported by adverse dry conditions in Brazil and the strength of the Brazilian real. Currently, May arabica coffee has risen by 2.05% while May ICE robusta coffee is up by 1.89%. According to Somar Meteorologia, the key coffee-growing region of Minas Gerais received only 30.8 mm of rain during the week ending March 15, which accounts for just 71% of the historical rainfall average.

The Brazilian real has emerged as a critical factor influencing coffee prices, as it contributed to expectations of increased global coffee production in the 2024/25 season projected to rise by 4.0% year-on-year, totaling 174.855 million bags. Notably, arabica production is expected to increase by 1.5% to 97.845 million bags, while robusta production may enhance by 7.5% to 77.01 million bags.

The USDA’s Foreign Agricultural Service (FAS) forecasts a decline in 2024/25 ending stocks, with a -6.6% drop to 20.867 million bags, marking a 25-year low. Additionally, the USDA had previously estimated Brazil’s coffee production at 66.4 MMT for the same period, lowered from an earlier forecast of 69.9 MMT, alongside a projected inventory of 1.2 million bags, reflecting a 26% yearly reduction.

Looking ahead to the 2025/26 marketing year, Volcafe has revised its estimate for Brazil’s arabica coffee production down to 34.4 million bags—around 11 million bags less than a prior estimate—prompted by discoveries of severe drought impacts during a crop tour. This adjustment leads Volcafe to predict an arabica coffee deficit of -8.5 million bags for 2025/26, larger than the deficit of -5.5 million bags expected for 2024/25 and indicating an extending pattern of deficits.

Rich Asplund, the author, has confirmed no direct or indirect positions in the securities mentioned in this article. The information presented is intended solely for informational purposes. For detailed terms, please refer to the Barchart Disclosure Policy.

In summary, coffee prices are currently rising due to dryness in Brazil and a strengthening Brazilian real. Projections indicate a rise in global coffee production for the upcoming season, while end-of-year inventories are expected to decline significantly. Furthermore, revised estimates for future arabica production in Brazil underscore the impact of prolonged drought, leading to an anticipated global coffee deficit in subsequent years. Overall, market conditions appear to remain challenging for coffee producers amidst fluctuating weather patterns and economic factors.

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