September Arabica coffee (KCU24) surged by +5.00% on Monday, closing at +11.25, while July ICE Robusta coffee (RMN24) increased by +3.61%, closing at +155.
Coffee prices soared to two-week highs on Monday, driven by mounting concerns over dry weather conditions impacting Brazil’s coffee crops. Somar Meteorologia reported that Brazil’s Minas Gerais region, responsible for about 30% of the country’s arabica coffee production, experienced no rainfall for the third consecutive week.
Additionally, fears of excessive dryness affecting Vietnam’s coffee crops bolstered robusta prices. Coffee trader Volcafe recently predicted that Vietnam’s 2024/25 robusta coffee production might drop to 24 million bags, the lowest in 13 years, due to significant rainfall deficits causing “irreversible damage” to coffee blossoms. Volcafe also forecasted a global robusta shortfall of 4.6 million bags for 2024/25, marking the fourth consecutive year of robusta bean deficits, albeit a smaller deficit compared to the previous year’s 9 million bags.
Contrarily, the USDA’s latest bi-annual report provided a bearish outlook for coffee prices. The USDA’s Foreign Agriculture Service (FAS) projected a 4.2% year-over-year increase in global coffee production for 2024/25, reaching 176.235 million bags. This includes a 4.4% rise in arabica production to 99.855 million bags and a 3.9% increase in robusta production to 76.38 million bags. Furthermore, 2024/25 ending stocks are expected to climb by 7.7% to 25.78 million bags from 23.93 million bags in 2023/24. Brazil’s arabica production alone is anticipated to rise by 7.3% year-over-year to 48.2 million bags due to improved yields and expanded acreage, while Colombia’s production is projected to grow by 1.6% to 12.4 million bags.
The accelerated pace of Brazil’s coffee harvest has also weighed on prices. Safras & Mercado reported that as of June 18, 44% of Brazil’s 2024/25 coffee harvest was completed, surpassing the 39% completion rate of the previous year and the five-year average of 40%.
An increase in ICE coffee inventories has further pressured prices. As of last Thursday, ICE-monitored robusta coffee inventories reached an 11-1/2 month high of 5,995 lots, recovering from a record low of 1,958 lots on February 21. Similarly, ICE-monitored arabica coffee inventories climbed to a 16-month high of 835,444 bags on Monday, rebounding from a 24-year low of 224,066 bags on November 30.
Tight supplies from Vietnam, the world’s largest robusta producer, continue to support prices. Vietnam’s agriculture department projected a 20% drop in coffee production for the 2023/24 crop year, the smallest in four years, due to drought. The Vietnam Coffee Association also forecasted a 20% year-over-year decline in 2023/24 coffee exports to 1.336 million metric tons (MMT). Vietnam’s Customs Department reported a 47% year-over-year decrease in May coffee exports to 79,358 MT, the lowest May total since 2009. For January through May, coffee exports fell by 5.8% year-over-year to 817,154 MT. The USDA FAS also slightly reduced its forecast for Vietnam’s 2024/25 robusta coffee production to 27.9 million bags from 28 million bags in 2023/24.
Recent export data presented a mixed outlook. Brazil’s May green coffee exports surged by 90% year-over-year to 4 million bags, according to Cecafe. The International Coffee Organization (ICO) reported that global coffee exports rose by 16.8% year-over-year in April, with a total of 80.99 million bags exported from October to April, an 11.1% year-over-year increase. Brazil’s exporter group Comexim revised its 2023/24 coffee export estimate upward to 44.9 million bags from a previous estimate of 41.5 million bags, reaffirming Brazil’s status as the leading arabica coffee producer.
El Nino weather patterns have supported coffee prices by disrupting production. This year’s El Nino has brought drought conditions to Vietnam’s coffee regions, exacerbating crop damage.
However, bearish factors loom as well. On May 3, the ICO projected a 5.8% year-over-year increase in global coffee production for 2023/24, reaching 178 million bags due to an exceptional off-biennial crop year. Global consumption is expected to rise by 2.2% to 177 million bags, potentially resulting in a surplus of 1 million bags.