The price of coffee surged on Friday, with November Robusta futures and December Arabica futures reaching new highs. Meanwhile, the nearest-month Robusta futures hit a record level.

Global coffee prices have soared to record highs due to adverse weather conditions in major growing regions worldwide, potentially reducing coffee production. High-quality Arabica coffee prices traded in New York rose to $2.49 per pound over the past week, while Robusta coffee prices in London reached $5,000 per ton, doubling compared to a year ago.

On Friday, meteorologist Climatempo reported that higher-than-normal temperatures in Brazil's coffee-growing regions over the past weekend could harm coffee trees during their critical flowering period, potentially reducing coffee yields.

According to the disaster monitoring center Cemaden, Brazil is experiencing its driest weather since 1981. Somar Meteorologia reported last Monday that Brazil's Minas Gerais region received no rain in the past week. Minas Gerais accounts for about 30% of Brazil's Arabica crop. Additionally, Robusta coffee is also being supported by the impact of Typhoon Yagi, which hit Vietnam on Monday and may have damaged Robusta coffee fields.

Robusta coffee prices are being supported by concerns that excessive dryness in Vietnam will negatively affect the coffee crop and limit global Robusta production in the future. On March 26, the Vietnamese Ministry of Agriculture reported that Vietnam's coffee production for the 2023/24 season fell by 20% to 1.472 million tons, the lowest level in four years due to drought. Meanwhile, on May 31, the USDA forecasted that Vietnam's Robusta coffee production for the new 2024/25 marketing year would slightly decrease to 27.9 million bags from 28 million bags in the 2023/24 season.

According to data from Vietnam's General Department of Customs, Vietnam's coffee exports in August fell by 9.9% year-on-year to 76,214 tons, and Vietnam's coffee exports in the first eight months of the year dropped by 12.1% year-on-year to 1.06 million tons.

In Brazil, the latest data from Cecafe reported that Brazil's green coffee exports in August increased by 1.4% year-on-year to 3.41 million bags. This aligns with recent news from the Brazilian Ministry of Trade, which reported on August 7 that Brazil's coffee exports in July increased by 44% year-on-year to 202,000 tons.

Additionally, Cecafe reported on July 11 that Brazil's 2023/24 coffee exports increased by 33% year-on-year to a record 47.3 million bags. Globally, the International Coffee Organization (ICO) reported last Friday that global coffee exports increased by 12.2% year-on-year in July to 11.29 million bags, and global exports from October to July rose by 10.5% year-on-year to 115.01 million bags.

On the other hand, the supply chain is also facing disruptions from Houthi rebel attacks on ships in the Red Sea. Since November, ships moving between Asia and Europe have been forced to take the much longer route around the Cape of Good Hope instead of the Suez Canal.

Rising coffee inventories could pressure prices

However, amid this situation, there is a negative factor affecting coffee prices. This includes the recovery of ICE coffee inventories from record lows.

Last Thursday, ICE-monitored Arabica coffee inventories rose to a one-and-a-half-year high of 858,474 bags, up from the 24-year low of 224,066 bags reported in November 2023. Additionally, ICE-monitored Robusta coffee inventories on July 25 increased to a one-year high of 6,521 lots, up from the record low of 1,958 lots reported in February 2024.

Furthermore, the ICO reported on May 3 that global coffee production for 2023/24 increased by 5.8% year-on-year to 178 million bags due to an exceptional off-year harvest. The ICO also noted that global coffee consumption in 2023/24 increased by 2.2% year-on-year to 177 million bags, resulting in a coffee surplus of 1 million bags.

The USDA's semi-annual report on June 20 appears bearish for coffee prices. The USDA's Foreign Agricultural Service (FAS) forecasted that world coffee production in 2024/25 would increase by 4.2% year-on-year to 176.235 million bags, with Arabica production up 4.4% to 99.855 million bags and Robusta production up 3.9% to 76.38 million bags.

The FAS of the USDA forecasts that ending stocks for 2024/25 will increase by 7.7% to 25.78 million bags from 23.93 million bags in the 2023/24 season. This includes the forecast that Brazil's Arabica production for 2024/25 will increase by 7.3% year-on-year to 48.2 million bags due to higher yields and increased planting area. The USDA's FAS also forecasts that Colombia's 2024/54 crop, the world's second-largest Arabica coffee producer, will increase by 1.6% year-on-year to 12.4 million bags.

Theo Financial Times, Barchart