Coffee prices are declining, with May arabica coffee down 0.90 and May ICE robusta down 22, due to expected rain in Brazil alleviating drought fears and reports indicating a rise in coffee inventories. Supply concerns remain as forecasts show a potential global coffee surplus while drought issues impact production in Brazil and Vietnam.
Coffee prices are currently experiencing downward pressure, as evidenced by May arabica coffee futures falling by 0.90, or 0.23%, and May ICE robusta coffee dropping by 22, or 0.40%. The decline follows forecasts from Somar Meteorologia that predict widespread rain in Minas Gerais, Brazil’s largest arabica-producing region next week, alleviating previously existing drought concerns.
The increase in ICE coffee inventories has also contributed to the decline in coffee prices. For instance, arabica coffee inventories monitored by ICE reached a one-week high of 803,032 bags, while robusta coffee stocks have risen to a one-month high of 4,356 lots. Furthermore, a recent report from Marex Solutions anticipates that the global coffee surplus for the 2025/26 season will widen significantly to 1.2 million bags, up from 200,000 bags in the prior season.
In Vietnam, robusta coffee exports have risen by 6.6% year-over-year to reach 169,000 MT, which creates additional bearish pressure on robusta prices. On a supportive note, below-normal rainfall in Brazil’s coffee-producing areas has offered some protection to coffee prices, as recorded rainfall in Minas Gerais was only 1.1 mm, a mere 2% of the historical average. Additionally, the dollar index recently dropped to a nearly five-month low, providing modest support to coffee prices.
Continued supply fears bolster coffee prices; for instance, Cecafe reported a 1.6% decline in Brazil’s green coffee exports for January compared to the previous year. Conab predicts a 4.4% decrease in the 2025/26 coffee crop, projecting it to reach 51.81 million bags, the lowest yield in three years. Compounding this issue, Brazil has encountered its driest weather since 1981, adversely affecting coffee crop yields.
The adverse effects of the El Nino-related drought last year are expected to have long-term implications for coffee crops across South and Central America. Brazil’s rainfall has persistently fallen below average, damaging coffee plants during critical growth phases and reducing yield expectations for the 2025/26 arabica coffee crop. Colombia, another prominent producer, continues to recover from its own drought-related challenges.
Robusta coffee prices remain supported due to decreased production resulting from drought conditions in Vietnam. The country experienced a 20% decrease in coffee production for the 2023/24 crop year, reaching 1.472 million MT, the lowest output in four years. Projections for the 2024/25 marketing year indicate a slight decline in production to 27.9 million bags.
While global changes in coffee exports may pose bearish risks, Conab recently reported a record 50.5 million bags in Brazil’s 2024 coffee exports, representing a 28.8% increase year-over-year. However, the ICO indicated a decline in global coffee exports, further complicating market dynamics. The USDA’s recent updates painted a mixed picture, projecting an overall increase in world coffee production while foreseeing a decline in ending stocks.
Volcafe has lowered its projections for Brazil’s arabica coffee production for the 2025/26 season to 34.4 million bags, attributing this to the severity of prolonged drought. The forecast includes a global deficit of 8.5 million bags in 2025/26, indicative of ongoing challenges facing the coffee market.
In summary, coffee prices are under significant pressure due to anticipated rains in Brazil’s Minas Gerais region, increased coffee inventories, and a projected widening of the global coffee surplus. Concurrently, the drought conditions in both Brazil and Vietnam continue to impact production forecasts, leading to uncertainties in future coffee supplies. As the market grapples with these fluctuations, ongoing developments will be pivotal in determining the trajectory of coffee prices.
Original Source: www.tradingview.com
