Coffee Prices Supported by Weather Concerns in Brazil and Vietnam

Arabica coffee (KCN24) and robusta coffee (RMN24) have seen moderate increases in recent days, with robusta posting a new contract high and robusta posting an all-time high. This surge in coffee prices is attributed to crop concerns in Brazil and Vietnam, with Brazil’s Minas Gerais region receiving 7.6 mm of rainfall in the past week, accounting for about 30% of Brazil’s arabica crop. Robusta coffee prices are also seeing support from concerns about tight robusta supplies from Vietnam.

Tight robusta coffee supplies from Vietnam, the world’s largest producer of robusta coffee beans, are a major bullish factor. Vietnam’s agriculture department projected that Vietnam’s coffee production in the 2023/24 crop year could drop by -20% to 1.472 MMT, the smallest crop in four years, due to drought. The Vietnam Coffee Association also said that Vietnam’s 2023/24 coffee exports could drop -20% y/y to 1.336 MMT. Marex Group Plc forecasts a global 2024/25 robusta coffee deficit of -2.7 million bags due to reduced output in Vietnam.

Fund buying has supported this month’s surge in coffee prices, with funds boosting their long arabica coffee positions by 4,926 net-long positions to a record 71,811 in the week ended April 16. However, the record-long position could also exacerbate long liquidation pressures in a price downturn.

Coffee inventories have rebounded from historically low levels, with robusta coffee inventories falling to a record low of 1,958 lots on February 21 and arabica coffee inventories recovering to an 11-1/2 month high on Wednesday.

The El Nino weather event has been bullish for coffee prices, as it typically brings heavy rain to Brazil and drought to India, negatively impacting coffee crop production. The International Coffee Organization (ICO) projected that 2023/24 global coffee production would climb +5.8% y/y to 178 million bags due to an exceptional off-biennial crop year. The USDA’s Foreign Agriculture Service (FAS) projects that world coffee production in 2023/24 will increase +4.2% y/y 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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