Coffee Prices Rally Sharply on Dry Conditions in Brazil and Vietnam

Coffee prices surged to 3-week highs and closed sharply higher due to concerns that excessive dryness in Brazil and Vietnam will damage coffee crops and curb global production. Brazil’s Minas Gerais region received no rainfall or 0% of the historical average in the past week, the fourth consecutive week the area has received no rainfall. Vietnam’s Central Highland, the main coffee-growing region, received 195.6 mm of rainfall in the ten days from May 1, 41% below the long-term average.

Tight robusta coffee supplies from Vietnam, the world’s largest producer of robusta coffee beans, are a bullish factor. Vietnam’s agriculture department projected that Vietnam’s coffee production in the 2023/24 crop year would drop by -20% to 1.472 MMT, the smallest crop in four years, due to drought. The Vietnam Coffee Association also reported that Vietnam’s 2023/24 coffee exports would drop -20% y/y to 1.336 MMT.

Recent bearish coffee export news included a rise in global Mar coffee exports by 8.1% YoY to 12.99 million bags, and an increase in Oct-Mar global coffee exports by 10.4% YoY at 69.16 million bags. Brazil’s exporter group Comexim raised its Brazil 2023/24 coffee export estimate to 44.9 million bags from a previous estimate of 41.5 million bags.

A rebound in ICE coffee inventories from historically low levels is negative for prices. ICE-monitored robusta coffee inventories fell to a record low of 1,958 lots on February 21, but recovered to a 9-1/4 month high Tuesday of 4,466 lots. The El Nino weather event has been bullish for coffee prices, with heavy rain in Brazil and drought in India negatively impacting coffee crop production.

The USDA’s Foreign Agriculture Service (FAS) projected that world coffee production in 2023/24 will increase by 4.2% YoY to 171.4 million bags, with a 10.7% increase in arabica production to 97.3 million bags and a -3.3% decline in robusta production to 74.1 million bags.

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