Insufficient Rain in Brazil and Its Impact on Coffee Prices

Coffee prices rose recently, bolstered by dry weather in Brazil and a stronger Brazilian real, while supply concerns persist. Recent export data reveals declining coffee exports from Brazil and predictions of lower production estimates for upcoming years. With mixed signals from global export patterns, the market is navigating through potential deficits and increased inventories.

Coffee prices experienced modest increases on Wednesday, influenced by the prevailing dry conditions in Brazil and the appreciation of the Brazilian real. Reports from Somar Meteorologia indicated that Minas Gerais, the leading arabica coffee-producing region, received only 30.8 mm of rain recently, equating to 71% of the historical average. Concurrently, a stronger Brazilian real hindered coffee export activity from producers in the region.

Robusta coffee also exhibited gains on the same day, although they were muted due to a rise in robusta inventory levels, which reached a one-week peak of 4,336 lots. In contrast, arabica coffee inventories marked a decrease, falling to a 3.5-week low of 782,648 bags, contributing to the overall price dynamics in the coffee market.

Ongoing supply concerns have buoyed coffee prices; Cecafe revealed that Brazil’s February green coffee exports declined by 12% year-on-year to approximately 3 million bags. Furthermore, Brazil’s government crop forecasting agency, Conab, recently downgraded its coffee production forecasts for both the 2024 and 2025/26 cycles, contributing to anxiety regarding future supplies.

On a counterbalancing note, Marex Solutions projected an increase in the global coffee surplus for the 2025/26 season, expecting it to expand to 1.2 million bags. Additionally, reports from Vietnam highlighted a notable rise in coffee exports for February, further impacting robusta coffee prices.

The dry El Niño conditions from the previous year have the potential to inflict long-term damage on coffee crops in South and Central America. Brazil has been experiencing its driest weather since 1981, leading to less favorable flowering conditions for coffee trees and diminished prospects for high-quality arabica production.

Robusta coffee prices are also experiencing pressure due to reduced production in Vietnam, which has seen an approximate 20% decline in yield for the 2023/24 crop year. Estimates from the USDA indicate a slight further dip in Vietnam’s output in 2024/25, suggesting ongoing challenges for robusta producers.

Conversely, market data revealed contradictory trends in coffee exports globally. While Conab reported a sharp increase in Brazil’s coffee exports in 2024, the International Coffee Organization indicated a decline in global exports for December, reflecting mixed trends in the market.

USDA’s recent biannual report provided an optimistic outlook for overall coffee production in the upcoming year, with predictions of a notable increase in global coffee production. However, projections highlighted declining inventories, signaling market tensions as supplies are anticipated to tighten.

In the 2025/26 marketing year, Volcafe revised its Brazil arabica coffee production estimate significantly lower, citing the extended impact of prolonged drought conditions. This follows a trend of increasing deficits in the arabica market, indicating mounting pressures on coffee supply.

The current coffee market showcases a complex interplay of factors influencing prices, primarily driven by adverse weather conditions in Brazil and supply forecasts. Despite rising prices due to supply concerns, projections of larger global coffee surpluses could alter market dynamics. The ongoing challenges in production, particularly in robusta and arabica varieties, highlight the vulnerabilities faced by coffee growers and the broader implications for future markets.

Original Source: www.nasdaq.com