Coffee Prices Rise as Weather Disruptions Impact Global Supply

Coffee prices surged to one-week highs on Tuesday, driven by growing concerns over adverse weather events that may impact global production. The dry conditions in Brazil, the world’s leading arabica coffee producer, are contributing to the upward pressure on prices.

According to Somar Meteorologia, the Minas Gerais region, which accounts for around 30% of Brazil’s arabica output, experienced no rainfall over the past week.

Meanwhile, robusta coffee prices are also climbing, supported by Typhoon Yagi’s impact on Vietnam, a major robusta coffee producer, potentially damaging the crops.

Adding to the bullish sentiment for robusta, Vietnam’s coffee exports have significantly declined. The General Department of Vietnam Customs recently reported a 14.1% year-on-year decrease in the crop’s exports in August, amounting to 73,000 metric tons (MT). From January to August, exports dropped 12.5% year-on-year, reaching 1.05 million MT.

Coffee Market Responds to Reduced Exports and Drought Conditions

Both arabica and robusta coffee prices soared late last month, with arabica reaching a 13-year high and robusta hitting a record peak. Concerns over prolonged dry spells in Brazil have raised fears that premature flowering of the crop trees could reduce yields for the country’s 2024/25 harvest.

Brazil has been grappling with its driest conditions since 1981, according to disaster monitoring center Cemaden.

Vietnam’s production is also under pressure, with robusta crop estimates for 2024/25 projected at 24 million bags, the lowest in 13 years, as drought severely affects crop yields. Volcafe forecasts a global robusta deficit of 4.6 million bags in 2024/25, marking the fourth consecutive year of deficits.

Additionally, Vietnam’s agriculture department anticipates a 20% drop in the 2023/24 harvest due to drought, making it the smallest crop in four years.

Coffee Inventories and Rising Global Production Weigh on Prices

However, increased global coffee exports and rising inventory levels are applying downward pressure on prices. The International Coffee Organization (ICO) reported a 12.2% year-on-year rise in July exports, contributing to a 10.5% increase in exports from October to July.
Brazil, a major arabica producer, saw its July exports of the crop jump by 44% year-on-year, with total exports reaching a record 47.3 million bags for the 2023/24 season.

Furthermore, ICE-monitored arabica coffee inventories recently hit a 1.5-year high, while robusta inventories also climbed to a one-year peak. These developments, coupled with a USDA report projecting a 4.2% rise in global coffee production for 2024/25, suggest an oversupply may limit future price gains.

In conclusion, while weather disruptions in key coffee-producing regions are fueling price hikes, increasing global production and rising inventories could temper those gains in the coming months.

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