Arabica and robusta coffee prices experienced gains on Monday due to increasing worries about adverse weather conditions in major coffee-producing regions.
July arabica coffee (KCN24) climbed by +3.00 (+1.34%), closing at a higher price, while July ICE robusta coffee (RMN24) rose by +48 (+1.17%).
Brazilian Drought Threatens Coffee Crops
The rise in coffee prices is largely attributed to fears that Brazil’s coffee crops are suffering due to unusually dry weather. Somar Meteorologia reported that Brazil’s Minas Gerais region, responsible for around 30% of the nation’s arabica coffee output, received no rainfall for the second consecutive week.
Vietnam Faces Severe Dryness, Impacting Robusta Production
Robusta coffee prices were bolstered by concerns over extreme dryness in Vietnam, which threatens to reduce global production. On May 22, Volcafe, a coffee trading firm, predicted that Vietnam’s 2024/25 robusta coffee crop might be limited to 24 million bags, the lowest in 13 years, due to irreparable damage to coffee blossoms caused by insufficient rainfall. Volcafe also forecasted a global robusta deficit of 4.6 million bags for 2024/25, marking the fourth consecutive year of robusta bean shortages.
Vietnam’s Coffee Export Decline
Vietnam, the world’s largest producer of robusta coffee, is experiencing tight supplies. The Vietnamese agriculture department projected on March 26 that coffee production for the 2023/24 crop year would decrease by 20% to 1.472 million metric tons (MMT), the smallest yield in four years due to drought. The Vietnam Coffee Association further noted that coffee exports would fall by 20% year-over-year to 1.336 MMT. Vietnam’s Customs Department reported a significant drop in May coffee exports by 47% year-over-year to 79,358 MT, the lowest for May since 2009, and a 5.8% decline in coffee exports from January to May year-over-year to 817,154 MT. The USDA FAS projected on May 31 that Vietnam’s robusta coffee production for 2024/25 would slightly decrease to 27.9 million bags from 28 million bags in 2023/24.
Increased Brazilian Coffee Exports
Last Wednesday, arabica coffee prices fell to a three-week low after Cecafe reported a 90% year-over-year surge in Brazil’s May green coffee exports to 4 million bags. Additionally, the fast pace of Brazil’s coffee harvest has increased supplies, putting downward pressure on prices. Safras & Mercado reported on June 7 that Brazil’s 2024/25 coffee harvest was 29% complete as of June 4, ahead of last year’s 26% at the same time and the five-year average of 27%.
Global Coffee Export Trends and Inventory Levels
Recent bearish trends in coffee exports also affected prices. On June 5, the International Coffee Organization (ICO) reported that global coffee exports rose by 16.8% year-over-year in April to 10.24 million bags, with October to April exports up by 11.1% year-over-year to 80.99 million bags. Comexim, a Brazilian exporter group, increased its estimate for Brazil’s 2023/24 coffee exports to 44.9 million bags from a previous 41.5 million bags in February.
ICE-monitored coffee inventories have rebounded from historically low levels. Robusta coffee inventories fell to a record low of 1,958 lots on February 21 but recovered to an 11-month high of 5,884 lots last Friday. Similarly, arabica coffee inventories dropped to a 24-year low of 224,066 bags on November 30 but climbed to a 15-3/4 month high of 821,091 bags on Monday.
Impact of El Nino on Coffee Production
The recent El Nino weather event has also supported higher coffee prices. This weather pattern typically brings heavy rains to Brazil and drought to India, adversely affecting coffee production. This year, El Nino has caused drought conditions in Vietnam’s coffee-growing regions, according to the Institute of Meteorology, Hydrology, and Climate Change.
Projected Increase in Global Coffee Production
On a bearish note, the ICO projected on May 3 that global coffee production for 2023/24 would rise by 5.8% year-over-year to 178 million bags due to an exceptional off-biennial crop year. The ICO also expects global coffee consumption to increase by 2.2% year-over-year to 177 million bags, resulting in a surplus of 1 million bags.
The USDA’s Foreign Agriculture Service (FAS) biannual report released on December 21 predicted a 4.2% year-over-year increase in world coffee production to 171.4 million bags for 2023/24, with a 10.7% rise in arabica production to 97.3 million bags and a 3.3% decline in robusta production to 74.1 million bags. The report also forecasted a 4.0% decline in 2023/24 ending stocks to 26.5 million bags from 27.6 million bags in 2022-23. The FAS projected a 12.8% year-over-year increase in Brazil’s 2023/24 arabica production to 44.9 million bags due to higher yields and expanded acreage. Additionally, Colombia’s 2023/24 coffee production is expected to rise by 7.5% year-over-year to 11.5 million bags.