March Arabica coffee (KCH25) increased by 2.28%, rising 6.75 points, while January ICE Robusta coffee (RMF25) gained 2.62%, up 121 points. The dollar’s weakness (DXY00) has sparked short-covering in coffee futures, supporting the upward movement. Robusta coffee also saw an increase, as rains in Vietnam are slowing down the coffee harvest.
A combination of long liquidation pressures and a margin hike by ICE (Intercontinental Exchange) contributed to the decline. Additionally, the Vietnam Coffee and Cocoa Association raised its forecast for Vietnam’s 2024/25 coffee production to 28 million bags, up from an earlier estimate of 27 million bags, which weighed on Robusta prices.
The Brazilian real remains weak, hovering just above last week’s record low against the dollar. This has encouraged Brazilian coffee exporters to sell, further pressuring coffee prices.
Despite these bearish factors, coffee prices surged last Friday. Arabica prices posted a contract high, and the nearest Arabica futures reached their highest levels in 47 years. Robusta coffee prices also climbed to a two-and-a-half-month high. The rally was driven by fears that adverse weather in Brazil and Vietnam, two of the world’s largest coffee producers, would threaten global coffee production. According to Sucden Financial, some Brazilian coffee exporters have unwound their hedges and bought coffee futures to cover short positions, driving prices higher.
In addition to weather disruptions, the impact of El Niño conditions earlier this year is still being felt. Dry weather in Brazil has reduced rainfall in key coffee-growing regions, which has damaged coffee trees during the flowering stage. This is expected to hurt Brazil’s 2025/26 Arabica crop. Brazil has been facing its driest weather since 1981, and Colombia, the world’s second-largest Arabica producer, is also recovering from a drought triggered by El Niño.
In Minas Gerais, Brazil’s largest Arabica-producing region, rainfall last week was only 31% of the historical average. This further threatens Brazil’s coffee output, which could lead to higher prices in the long term.
For Robusta coffee, tight supplies continue to support prices. Vietnam, the world’s largest Robusta producer, has faced a 20% drop in its coffee production for the 2023/24 crop year, marking the smallest crop in four years. The USDA Foreign Agricultural Service (FAS) projects Vietnam’s 2024/25 Robusta production to decrease slightly, adding upward pressure on prices.
Vietnam’s coffee exports in October dropped by 11.6% month-over-month, and year-to-date exports are down by 11.1%. This further tightens global Robusta supplies. Additionally, recent heavy rains in Vietnam have delayed the coffee harvest, adding to supply concerns.
While there are signs of tighter coffee inventories, the market remains wary of the impact of increased global production. The International Coffee Organization (ICO) reported that global coffee exports in September rose by 25% year-over-year. Moreover, global production for the 2023/24 season is expected to reach a record 178 million bags, with consumption climbing by 2.2% to a new high of 177 million bags. The surplus of coffee is expected to result in tighter markets next year.
On the supply side, the USDA’s FAS projected that Brazil’s 2024/25 coffee production would fall to 66.4 million bags, down from a previous estimate of 69.9 million bags. This would further contribute to the tightness in global coffee inventories.
With these dynamics in play, coffee prices are likely to remain volatile, driven by both supply-side constraints and global weather challenges.
Related topics:
- Greek Coffee Prices Rise Sharply as Global Supply Chains Disrupted
- Coffee Prices Rise Due to Tighter Supplies and Weather Challenges
- Coffee Day Enterprises Posts Rs 11.45 Crore Loss for Q1 FY2024