Forecasted Rain in Brazil Leads to Liquidation in Coffee Futures

Forecasted rain in Brazil has led to significant liquidation in coffee futures, causing sharp price declines in both arabica and robusta coffee. Reports indicate increased sales of Brazil’s coffee harvest but ongoing concerns regarding supply due to adverse weather conditions could affect future production. The market remains cautious as inventories decrease and global coffee output estimates fluctuate.

Recent forecasts indicating increased rainfall in Brazil have triggered significant liquidation in coffee futures, causing prices to decline sharply. As of today, May arabica coffee is down by 5.49%, and May ICE robusta coffee has dropped 3.44%. Somar Meteorologia has reported that current dry weather will give way to expected showers next week, which may alleviate drought conditions affecting coffee production.

Additionally, robusta coffee prices faced downward pressure following an announcement by Vietnam’s General Statistics Office indicating a year-on-year export increase of 6.6% in February. The anticipated rainfall in Vietnam’s Central Highlands—the country’s primary coffee production area—has also contributed to reduced prices.

Reports from Somar Meteorologia revealed that Minas Gerais, Brazil’s main arabica coffee-growing region, received 11.4 mm of rain for the week ending February 22, which is only 24% of the historical average. This delayed rain report was attributed to the recent Brazilian Carnival holiday which further impacted market sentiments towards coffee.

Alongside the rainfall forecasts, diminishing inventories are bolstering coffee prices. As of last Friday, ICE-monitored robusta coffee inventories fell to a two-month low of 4,247 lots, with arabica inventories also decreasing to a nine-and-a-quarter-month low at 758,514 bags, although they have since slightly recovered.

Notably, a larger proportion of Brazil’s coffee harvest has already been sold when compared to previous years. As of February 11, producers had sold 88% of the 2024/25 harvest, significantly higher than last year’s 79% and the five-year average of 82%. However, sales for the 2025/26 crop remain sluggish at 13%.

Continued concerns regarding coffee supply persist, as Brazil’s January green coffee exports dropped by 1.6% year-on-year. Moreover, government forecasts predict a considerable reduction in Brazil’s 2025/26 coffee crop due to ongoing drought conditions exacerbated by last year’s El Nino weather event.

Robusta coffee prices are further influenced by reduced production in Vietnam, where drought has led to a 20% decrease in output for the 2023/24 season. This significant drop positions Vietnam for the smallest coffee crop in four years, and despite some optimistic production estimates for the following year, uncertainty remains prevalent.

While Brazil’s overall coffee exports appear to be improving, with a record rise in 2024, conflicting reports indicate a drop in global coffee exports during late 2022, further complicating the market outlook.

The USDA has issued mixed projections for coffee production, forecasting an overall increase for 2024/25, yet signaling dwindling ending stocks. The report highlighted that Brazil’s forecasts were adjusted downward due to adverse weather impacts, with expectations of significant deficits continuing into the next coffee marketing year.

Consequently, market experts remain cautious as estimates for Brazil’s arabica production have been revised downward significantly. Continued evaluation of global coffee inventory trends and climate influences will be essential for understanding future price movements in the coffee market.

In conclusion, the forecasts for increased rainfall in Brazil have substantially influenced coffee futures, prompting price declines due to liquidation activities. Shrinking inventories and altered production estimates amid ongoing supply concerns further complicate the market landscape. As global coffee production faces challenges, particularly in Brazil and Vietnam, stakeholders are urged to closely monitor these developments and their potential impacts on future pricing and supply dynamics.

Original Source: www.tradingview.com