Arabica Coffee Prices Rise Amid Brazilian Weather Challenges

Arabica coffee prices are rising due to insufficient rainfall in Brazil, threatening yields, while robusta prices are declining amid increased inventories. Brazil’s coffee export reductions and forecasts of crop declines further intensify market concerns. A more comprehensive analysis indicates future arabica deficits may arise from ongoing adverse weather impacts.

Coffee prices experienced fluctuations today, as May arabica coffee (KCK25) increased by 0.30 (+0.08%), while robusta coffee (RMK25) saw a decline of -21 (-0.38%). The rise in arabica prices to a two-week high can be attributed to insufficient rainfall impacting coffee yields in Brazil. According to Somar Meteorologia, the Minas Gerais region, which is a major arabica cultivation area, received only 30.8 mm of rain last week, representing 71% of the historical average.

The largest arabica co-operative in Brazil, Cooxupe, noted that high temperatures and below-normal rainfall from the previous month would likely affect overall coffee yields this year. In contrast, robusta coffee market conditions turned unfavorable as inventories monitored by ICE rose to a 1-1/2 week high of 4,336 lots, contributing to the decrease in robusta prices. However, arabica inventories declined to a 3-1/2 week low of 782,648 bags, heightening supply concerns.

Supply uncertainties are influential in current coffee pricing trends. Cecafe reported that Brazil’s green coffee exports in February experienced a 12% year-on-year decline to three million bags. Concurrently, Brazil’s governmental crop forecasting agency, Conab, revised its 2025/26 coffee crop estimate down by 4.4% to a three-year low of 51.81 million bags, while also reducing its 2024 estimate by 1.1% to 54.2 million bags.

Further complicating the coffee landscape, Marex Solutions forecasts that the global coffee surplus for the 2025/26 season may rise significantly to 1.2 million bags compared to a surplus of only 200,000 bags in the preceding season. On a bearish note, the robusta coffee market is experiencing pressure, as Vietnam’s coffee exports in February grew by 6.6% year-on-year to 169,000 MT, positioning Vietnam as the leading producer of robusta beans.

The prolonged drought conditions in Brazil, exacerbated by last year’s dry El Nino weather, have raised concerns regarding the long-term health of coffee crops across South and Central America. Brazil has endured the driest conditions since 1981, which negatively impacts coffee plants during critical flowering periods, particularly affecting the outlook for the upcoming 2025/26 arabica crop. Meanwhile, Colombia is gradually recovering from last year’s El Nino-induced droughts.

Robusta coffee prices are also compelled by reduced production. In Vietnam, the 2023/24 crop year production dropped by 20% to 1.472 million metric tons, marking the smallest harvest in four years. The USDA FAS projects a slight dip in Vietnam’s robusta production for the 2024/25 marketing year, falling to 27.9 million bags. Additionally, Vietnam’s coffee exports in 2024 plummeted 17.1% year-on-year to 1.35 million metric tons.

Bearish sentiment is further fueled by news of anticipated increases in global coffee exports. Conab revealed a record rise in Brazil’s 2024 coffee exports by 28.8% year-on-year to 50.5 million bags, despite the ICO reporting a 12.4% year-on-year reduction in global coffee exports for December. The USDA’s biannual report projected a 4% global production increase for coffee in 2024/25, alongside a slight rise in arabica and a more significant increase in robusta production.

Expectations for Brazil’s coffee production in 2024/25 have decreased, with the USDA anticipating it will reach 66.4 million bags, lower than earlier assessments. A drastic reduction in Brazil’s arabica production for 2025/26 has also been forecasted by Volcafe, which now estimates it at 34.4 million bags, indicating possible ongoing deficits for arabica coffee in the coming years. Rich Asplund has no positions in any securities mentioned within this article, as noted in the Barchart Disclosure Policy.

The recent dynamics in the coffee market, particularly concerning arabica coffee prices, are significantly influenced by adverse weather conditions affecting crop yields in Brazil and ongoing supply uncertainties. While arabica prices have displayed resilience amid these challenges, robusta coffee is witnessing pressure from rising inventories and increased production in Vietnam. Future forecasts indicate potential deficits for arabica coffee, compelling stakeholders to monitor these developments closely as they unfold.

Original Source: www.nasdaq.com