Coffee Prices End Sharply Higher on Global Crop Concerns

Coffee prices have surged over the past month due to crop concerns in Brazil and Vietnam. Brazil’s Minas Gerais region received 15.8 mm of rainfall in the past week, accounting for about 30% of Brazil’s arabica crop. Robusta coffee is surging to new record highs on fears that excessive dryness in Vietnam will limit the country’s robusta coffee production.

Tight robusta coffee supplies from Vietnam, the world’s largest producer of robusta coffee beans, are a major bullish factor. On March 26, 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 said that Vietnam’s 2023/24 coffee exports could drop -20% y/y to 1.336 MM. 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. Last Friday’s weekly Commitment of Traders (COT) report showed funds boosted their long arabica coffee positions by 9,560 net-long positions to a record 66,885 in the week ended April 9. However, the record-long position could also exacerbate long liquidation pressures in a price downturn.

Coffee inventories have rebounded from historically low levels. ICE-monitored robusta coffee inventories fell to a record low of 1,958 lots on February 21, but recovered to a 3-1/2 month high Wednesday of 3,491 lots. ICE-monitored arabica coffee inventories fell to a 24-year low of 224,066 bags on November 30, but recovered to a 10-3/4 month high last Friday of 639,650 bags.

The El Nino weather event is 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.

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