Arabica and Robusta Coffee Surge Amidst Supply Concerns and Market Dynamics
On Wednesday, Arabica coffee (KCK24) saw a notable increase, closing up +2.60 (+1.38%), while May ICE Robusta coffee (RMK24) also experienced a rise, closing up +94 (+2.71%).
The upward momentum in coffee prices was evident as Arabica reached a 2-1/2 week high, and Robusta hit an all-time high in nearest futures. This surge in Robusta prices followed a concerning announcement from the Vietnam Coffee Association, which stated on Tuesday that Vietnam’s coffee exports for 2023/24 could decline by -20% year-on-year to 1.336 MMT due to dry weather adversely affecting coffee yields and production. The robust performance of Robusta prices on Wednesday provided additional support to Arabica coffee.
Vietnam, being the largest producer of Robusta coffee beans globally, faces tight supplies, contributing significantly to the bullish sentiment in prices. Recent data from Vietnam’s General Statistics Office indicated a significant decrease in February coffee exports, down by -32.8% month-on-month and -20.1% year-on-year to 160,584 MT. However, total exports for January and February combined rose by +16.2% year-on-year to 398,000 MT. Additionally, Vietnam’s agriculture department projected a further decline in coffee production for the 2023/24 crop year, foreseeing a drop of -20% to 1.472 MMT, marking the smallest crop in four years due to drought conditions. Marex Group Plc also forecasted a global Robusta coffee deficit of -2.7 million bags for the 2024/25 period, driven by reduced output in Vietnam.
Conversely, above-average rainfall in Brazil has alleviated concerns of dryness, which could have negatively impacted coffee production. Brazil’s Minas Gerais region received significant rainfall, reaching 106% of the historical average, easing concerns over coffee crop conditions. Brazil’s robust coffee exports in January surged by +45% year-on-year to 3.7 million bags, contributing to global market dynamics.
Looking ahead, the International Coffee Organization (ICO) reported an increase in global coffee exports, indicating a positive trend in market demand. However, factors such as the El Nino weather event, which may bring drought to Vietnam’s coffee-growing regions, and projections of a surplus in coffee production present both bullish and bearish outlooks for the market.
In summary, the recent surge in Arabica and Robusta coffee prices reflects a complex interplay of supply concerns, weather patterns, and market dynamics, shaping the trajectory of the coffee market in the near term.
