Coffee prices surged sharply on Tuesday, marking their third consecutive day of significant gains. The December arabica contract hit a new high, while the nearest futures (U24) reached a 13-year peak. November robusta futures also set a new contract high, with nearest futures (U24) achieving a record level.
The recent spike in coffee prices is largely attributed to severe dryness in Brazil, which may jeopardize the flowering and subsequent yields of the country’s coffee trees. The flowering period for Brazil’s arabica coffee typically begins in September. According to Maxar Technologies, the coffee-growing regions in Brazil are expected to experience “mostly dry” conditions over the next two weeks.
Somar Meteorologia reported that last week, Brazil’s Minas Gerais region, which produces about 30% of the country’s arabica coffee, received only 0.6 mm of rain—just 8% of the historical average. Additionally, Cooxupe, Brazil’s largest coffee cooperative, indicated that the coffee trees remain under stress due to a lack of significant rainfall in key growing regions over the past 120 days.
The decline in coffee exports from Vietnam, the world’s leading robusta producer, has further buoyed robusta prices. The General Department of Vietnam Customs reported a 29.3% year-on-year drop in July coffee exports to 76,982 MT. Additionally, coffee exports from January to July fell 12.4% year-on-year to 979,353 MT.
Fears of reduced robusta production in Vietnam due to adverse weather conditions are driving prices up. Volcafe, a major coffee trader, warned in May that Vietnam’s 2024/25 robusta crop could be the smallest in 13 years, with poor rainfall causing “irreversible damage” to coffee blossoms. Volcafe also forecasts a global robusta deficit of 4.6 million bags for 2024/25, marking the fourth consecutive year of shortages, though this is an improvement from the 9-million-bag deficit in 2023/24.
Vietnam’s agriculture department projected in March that coffee production for the 2023/24 crop year would fall by 20% to 1.472 MMT due to drought. Consequently, the Vietnam Coffee Association estimated a 20% drop in coffee exports to 1.336 MMT. The USDA FAS also revised its 2024/25 robusta production forecast slightly downward to 27.9 million bags from 28 million bags in the previous season.
Conversely, robust coffee exports from Brazil have tempered arabica prices. The Brazilian Trade Ministry reported a 44% year-on-year increase in July coffee exports to 202,000 MT. Cecafe noted a record 47.3 million bags of coffee exports for the 2023/24 season, a 33% increase from the previous year. The International Coffee Organization (ICO) highlighted a 3.8% year-on-year rise in global coffee exports for June, reaching 10.78 million bags, and a 10.1% increase for the October-June period, totaling 103.47 million bags.
A rebound in ICE coffee inventories from historically low levels has exerted downward pressure on prices. ICE-monitored arabica inventories climbed to a 1.5-year high of 844,145 bags last Friday, up from a 24-year low of 224,066 bags in November 2023. Similarly, robusta inventories rose to a 1-year high of 6,521 lots as of July 25, from a record low of 1,958 lots in February 2024.
However, the ICO reported a 5.8% year-on-year increase in global coffee production for the 2023/24 season, totaling 178 million bags, driven by an exceptional off-biennial crop year. The ICO also noted a 2.2% rise in global coffee consumption to 177 million bags, resulting in a 1 million bag surplus.
The USDA’s bi-annual report, released June 20, was also bearish for coffee prices. The USDA FAS projected a 4.2% increase in global coffee production for 2024/25 to 176.235 million bags, with arabica production rising by 4.4% to 99.855 million bags and robusta production increasing by 3.9% to 76.38 million bags. The USDA FAS expects ending stocks to grow by 7.7% to 25.78 million bags from 23.93 million bags in 2023/24. It also forecasted a 7.3% year-on-year increase in Brazil’s arabica production to 48.2 million bags and a 1.6% increase in Colombia’s arabica production to 12.4 million bags for the 2024/25 season.