Why Arabica Coffee Prices Remain Elevated Right Now
Arabica and Robusta coffee prices have continued climbing, driven by lower rainfall probability in Brazil's growing regions and a stronger Brazilian real that slows exports. ICE-monitored Arabica inventories have fallen to a 24-year low of 224,066 bags, while Robusta stocks dropped to a record low of 29,310 tons.
In Minas Gerais, which supplies about 30 percent of Brazil's Arabica output, rainfall over the past week reached 40.8 millimeters, only 89 percent of the historical average. Vietnam's Robusta spot price rose to 73,000 to 75,000 dong per kilogram. Red Sea tensions and Panama Canal drought add further pressure to supply chains.
Recently, Arabica and Robusta coffee prices have continued their upward trend. Weather forecasts for Brazil's producing regions show a lowered probability of rainfall, while the Brazilian real has risen to a nearly one-and-a-half-week high against the US dollar, dampening the pace of exports. Robusta inventories have fallen to historic lows, and Vietnam's supply side is also showing reluctance to sell. Tensions in the Red Sea and drought in the Panama Canal have further pushed up shipping costs. Amid these intertwined factors, the global coffee supply chain is facing a severe test.
Recently, Arabica and Robusta coffee prices have continued to climb. This trend is mainly driven by adjustments in Brazil's weather forecasts, with the probability of rainfall in the country's coffee-growing regions being lowered. At the same time, the Brazilian real has climbed to its highest level in nearly a week and a half against the US dollar, and a stronger exchange rate also tends to dampen exports.
The reason Robusta coffee prices remain high is rooted in tight supply and low inventory levels. ICE-monitored Robusta coffee inventories have approached a historic low, falling to a record low of 29,310 tons. ICE-monitored Arabica coffee inventories have also dropped to their lowest level in 24 years, at only 224,066 bags. In addition, supply-side problems have emerged in Brazil and Vietnam, the main Robusta suppliers.
Brazil
Like Colombia, Brazil has been affected by the El Niño phenomenon, and the country's dry weather may damage coffee crops. Brazilian meteorological forecasting agency Somar Meteorologia reported that rainfall in the Minas Gerais region over the past week was 40.8 millimeters, only 89% of the historical average. Minas Gerais accounts for about 30% of Brazil's Arabica coffee production.
At the same time, the meteorological department issued a warning of great danger along the coasts of São Paulo and Rio de Janeiro, meaning these areas face risks of heavy rainfall, severe flooding, river overflow, and landslides. Industry insiders pointed out that heavy rain will adversely affect the coffee berry harvest.
Vietnam
In Vietnam, Robusta coffee prices have been pushed even higher recently, with the latest spot price at 73,000 to 75,000 Vietnamese dong/kg, up from the previous 72,000 to 73,000 Vietnamese dong/kg. The Vietnamese coffee market is currently in a relatively chaotic state.
Some local traders said that tensions in the Red Sea have made local coffee farmers reluctant to sell their coffee beans easily. These coffee farmers are watching and waiting, hoping to sell after prices rise further. This situation has also made it difficult for many traders to obtain enough supply to fulfill previously signed forward contracts. A coffee agent named Mai Cau declared bankruptcy due to nearly $1 million in undelivered goods. Another trader revealed that farmers are holding about 70% of the new season's output in coffee beans.
External Factors
External factors are mainly concentrated on Red Sea shipping and the drought in the Panama Canal. On the Red Sea side, according to a warning from the United Nations Conference on Trade and Development, since Yemen's Houthi armed forces began attacking ships, many companies in the global shipping industry have announced suspensions of transit through the Suez Canal or chosen to reroute. The Suez Canal connects the Mediterranean Sea and the Red Sea and is an important passage for transport between Asia and Europe. Global shipping costs are currently soaring, thereby increasing inflation risks. It is estimated that trade volume through the Suez Canal fell by 42% over the past two months.
In addition, severe drought has lowered the water level of the Panama Canal to its lowest point in decades, thus limiting the number and size of ships that can pass through the canal, which is undoubtedly making things worse for shipping companies. It is estimated that throughput at the Panama Canal in December last year fell by 36% compared with the previous year and by 62% compared with two years earlier. The impact of this crisis on global transport is significant, and ships can only seek alternative routes, avoiding both the Suez Canal and the Panama Canal.
The above content is compiled by CoffeeHunters, a coffee news website.
