Arabica Coffee Prices Supported by Brazil’s Dry Weather Challenges

Arabica coffee prices have risen due to poor rainfall in Brazil affecting crop yields, while robusta prices are under pressure from positive rainfall forecasts in Vietnam. Recent data reflects declining inventory levels and complex supply dynamics. The USDA predicts mixed production trends which contribute to the market uncertainty surrounding both arabica and robusta coffee.

In a recent summary of coffee market trends, May arabica coffee prices (KCK25) rose by 2.90% to close at +11.55, while robusta coffee prices (RMK25) experienced a slight decline of 0.04%. The key factor supporting arabica prices is the below-average rainfall in Brazil, which jeopardizes crop yields ahead of the upcoming harvest in May. Somar Meteorologia predicts that persistent dry weather could adversely affect coffee crops during this critical growth period.

On the other hand, robusta coffee prices have dropped as expectations of increased rainfall in Vietnam, the largest grower of robusta, may enhance soil moisture and crop yields. Updated forecasts indicate daily chances of rain in Vietnam’s Central Highlands for the foreseeable future, bolstering market confidence in robusta output.

Recent reports from Somar Meteorologia highlighted that Brazil’s main arabica plantation area, Minas Gerais, received only 24% of its average rainfall last week. Given that Brazil is the top global producer of arabica coffee, these figures are critical. Furthermore, the country experienced its driest weather since 1981, impacting the coffee trees significantly.

Supporting coffee prices, ICE-monitored inventories for robusta coffee have dwindled to a two-month low, while arabica inventories initially fell but have since rebounded to a two-week high. Sales of Brazil’s coffee crop are ahead of last year’s pace, as 88% of the 2024/25 harvest had been sold by mid-February, compared to an 82% average over the past five years.

However, ongoing supply concerns persist, as exports from Brazil decreased by 1.6% year-on-year in January. Consequently, Brazil’s coffee output forecasts have been revised downward—Conab expects a drop of 4.4% for the 2025/26 crop year due to prolonged dry conditions affecting production prospects.

The prolonged impacts of last year’s El Nino have raised worries about long-term damage to coffee crops in South and Central America, further threatening supply levels. Additionally, Vietnam faces a decline in robusta production for the 2023/24 crop, a trend that is expected to continue into the 2024/25 season, although there have been some upward estimates for future production.

Contrarily, global coffee exports reports indicate bearish trends, with Brazil and Vietnam showing significant month-on-month increases in their respective coffee exports. Nevertheless, international organizations noted a drop in global coffee exports year-on-year.

The USDA’s biannual report provided mixed insights concerning coffee prices, forecasting a slight increase in global coffee production along with reduced ending stocks for the upcoming marketing year. The anticipated continued deficits projected for arabica coffee highlight the challenges the market may face going forward.

In conclusion, the dynamics of coffee pricing are shaped by weather conditions, regional production forecasts, inventory levels, and global export reports. As conditions evolve in Brazil and Vietnam, market participants will need to closely monitor developments affecting supply and demand for arabica and robusta coffee varieties.

In summary, arabica coffee prices are currently buoyed by adverse weather conditions in Brazil, which threaten crop yields ahead of the May harvest. Conversely, robusta prices are pressured by expectations of improved rainfall in Vietnam. Despite varying export reports, supply concerns for coffee remain significant, with downward revisions in production forecasts adding to market uncertainty. Ultimately, the interplay between these factors will continue to affect coffee pricing dynamics.

Original Source: www.tradingview.com