Coffee Prices Underpinned by Dryness in Brazil and Brazilian Real Strength

May arabica coffee (KCK25) today is up +7.55 (+1.97%), and May ICE robusta coffee (RMK25) is up +46 (+0.84%).

Coffee prices are climbing today due to dry conditions in Brazil and the strength of the Brazilian real.  Somar Meteorologia reported Monday that Brazil's biggest arabica coffee growing area of Minas Gerais received 30.8 mm of rain in the week ended March 15, or 71% of the historical average.  Also, the Brazilian real (^USDBRL) rallied to a 4-1/2 month high today against the dollar, discouraging export selling from Brazil's coffee producers.

Gains in robusta coffee today are limited due to increased supplies after ICE-monitored robusta coffee inventories rose to a 1-week high of 4,336 lots.   Conversely, ICE-monitored arabica coffee inventories fell to a 2-week low Tuesday of 787,609 bags.

Continued supply fears are supporting coffee prices.  Cecafe reported last Thursday that Brazil's February green coffee exports fell -12% y/y to 3 million bags.  Also, on January 28, Conab, Brazil's government crop forecasting agency, forecasted that Brazil's 2025/26 coffee crop would fall -4.4% y/y to a 3-year low of 51.81 million bags.  Conab also cut its 2024 Brazil coffee crop estimate by -1.1% to 54.2 million bags from a September estimate of 54.8 million bags.  

On the negative side for coffee, Marex Solutions said on March 7 that they expect the global coffee surplus in the 2025/26 season to widen to 1.2 million bags from +200,000 bags in the 2024/25 season.

A bearish factor for robusta coffee was the March 6 report from Vietnam's General Statistics Office that showed Vietnam's Feb coffee exports rose +6.6% y/y to 169,000 MT.  Vietnam is the world's number one producer of robusta coffee beans.

The impact of dry El Nino weather last year may lead to longer-term coffee crop damage in South and Central America.  Rainfall in Brazil has consistently been below average since last April, damaging coffee trees during the all-important flowering stage and reducing the prospects for Brazil's 2025/26 arabica coffee crop.  Brazil has been facing the driest weather since 1981, according to the natural disaster monitoring center Cemaden.  Also, Colombia, the world's second-largest arabica producer, is slowly recovering from the El Nino-spurred drought last year.

Robusta coffee prices are underpinned by reduced robusta production.  Due to drought, Vietnam's coffee production in the 2023/24 crop year dropped by -20% to 1.472 MMT, the smallest crop in four years.  The USDA FAS on May 31 projected that Vietnam's robusta coffee production in the new marketing year of 2024/25 will dip slightly to 27.9 million bags from 28 million bags in the 2023/24 season.  In addition, Vietnam's General Statistics Office reported on January 10 that 2024 Vietnam coffee exports fell -17.1% y/y to 1.35 MMT.  Also, the Vietnam Coffee and Cocoa Association last Wednesday cut its 2024/25 Vietnam coffee production estimate to 26.5 million bags from a December estimate of 28 million bags.  

News of larger global coffee exports is bearish for prices.  Conab reported on February 4 that Brazil's 2024 coffee exports rose +28.8% y/y to a record 50.5 million bags.   However, ICO reported on February 6 that Dec global coffee exports fell -12.4% y/y to 10.73 million bags, and Oct-Dec global coffee exports fell -0.8% y/y to 32.25 million bags.

The USDA's biannual report on December 18 was mixed for coffee prices.  The USDA's Foreign Agriculture Service (FAS) projected that world coffee production in 2024/25 will increase +4.0% y/y to 174.855 million bags, with a +1.5% increase in arabica production to 97.845 million bags and a +7.5% increase in robusta production to 77.01 million bags.  The USDA's FAS forecasts that 2024/25 ending stocks will fall by -6.6% to a 25-year low of 20.867 million bags from 22.347 million bags in 2023/24.  Separately, the USDA's FAS on November 22 projected Brazil's 2024/25 coffee production at 66.4 MMT, below its previous forecast of 69.9 MMT.  The USDA's FAS projects Brazil's coffee inventories at 1.2 million bags at the end of the 2024/25 season in June, down -26% y/y.

For the 2025/26 marketing year, Volcafe on December 17 cut its 2025/26 Brazil arabica coffee production estimate to 34.4 million bags, down by about 11 million bags from a September estimate after a crop tour revealed the severity of an extended drought in Brazil.  Volcafe projects a global 2025/26 arabica coffee deficit of -8.5 million bags, wider than the -5.5 million bag deficit for 2024/25 and the fifth consecutive year of deficits.