Why did arabica coffee futures hit a 13-year high?

The U.S. C-type coffee futures contract broke through 300 cents per pound, touching 303.93 cents intraday and closing at 302.92 cents, a 13-year record. Robusta futures rose alongside it. The trigger was the USDA Foreign Agricultural Service cutting Brazil's 2024/25 production forecast to 66.4 million bags, 5% below its earlier 69.9 million estimate.

Brazil is the largest coffee producer, so its harvest size shapes ICE Arabica inventories and futures prices. FAS also expects Brazilian coffee inventories to fall to 1.2 million bags by the end of 2024/25, down 26% year over year, while producing countries such as Honduras have seen output drop from severe weather, tightening global supply further.

Recently, the U.S. C-type coffee futures price has been climbing steadily, breaking through the 300 cents/pound mark, touching an intraday high of 303.93 cents and finally closing at 302.92 cents, setting a new 13-year historical record, while also driving Robusta coffee futures higher in tandem. The core driver of this rally came from the USDA Foreign Agricultural Service (FAS) sharply lowering its forecast for Brazil's 2024/25 production to 66.4 million bags, a 5% reduction from the previous USDA estimate of 69.9 million bags. Combined with multiple factors such as Brazil experiencing its worst drought since 1981 and a 26% year-on-year decline in inventories, market concerns over global coffee supply have continued to intensify. Producing countries such as Honduras have also seen reduced output due to severe weather, further exacerbating the tight supply situation.

Recently, the price benchmark of the coffee bean industry—the U.S. C-type coffee futures—has continued to climb, successfully breaking through the 300-cent mark, touching an intraday high of 303.93 cents/pound and finally closing at 302.92 cents/pound, setting a new 13-year historical high for futures and also driving Robusta coffee futures prices up in tandem.

As is well known, Brazil is the world's largest coffee producer, and its coffee output can almost be described as the backbone of the entire coffee industry. Therefore, the size of Brazil's coffee harvest directly affects ICE Arabica inventory levels and becomes a key factor determining the trend of Arabica futures prices. Recently, reports from multiple institutions have all shown that, under the impact of long-term climate change, the coffee harvest potential of many countries in the new season is declining sharply.

The direct trigger for this price increase came from the latest data released by the USDA Foreign Agricultural Service (FAS). FAS expects Brazil's 2024/25 coffee production to be 66.4 million bags (60 kg per bag), a sharp downward revision of 5% compared with the previous USDA forecast of 69.9 million bags. Not only that, FAS also predicts that by the end of the 2024/25 season, Brazil's coffee inventories will fall to 1.2 million bags, a year-on-year decrease of 26%.

The agricultural supply and demand reports regularly released by the U.S. Department of Agriculture have a major influence on agricultural futures markets. Such reports cover planted area forecasts, production estimates, and inventory data, and directly shape the price direction of agricultural futures. This sharp downward revision of Brazil's coffee production forecast and the bearish inventory level triggered widespread market worries about Brazil's coffee supply, thereby driving Arabica coffee prices significantly higher.

In addition to FAS, Brazil's National Supply Company (a government agency), Conab, had also previously lowered its 2024 Brazil coffee production forecast from 58.8 million bags to 54.8 million bags. At the same time, many institutions have followed suit in lowering their estimates for Brazil's coffee production. It can be said that the current market is generally pessimistic about next year's Brazil coffee production, with supply concerns prevailing.

Since April this year, Brazil has been continuously plagued by severe weather. According to data from Brazil's National Center for Monitoring and Early Warning of Natural Disasters (Cemaden), the country is experiencing its driest and most arid weather conditions since 1981. Rainfall in the coffee-producing regions of south-central Brazil has long been below average, with some areas recording no rainfall for more than 5 months, causing damage to coffee trees during the most critical flowering stage and even posing a threat to the outlook for 2025/26 coffee production.

Although Brazil began to see rainfall return in October, which can alleviate the drought to some extent, it is difficult to make up for the damage suffered by coffee trees during the drought. In addition, although the recent high international coffee prices are favorable for exports, Brazilian green bean traders are currently slowing down the pace of coffee sales. The reason is that future coffee production remains unclear, and green bean traders need to ensure they have enough coffee beans in stock for future sale, so they have slowed the pace of selling, which has also invisibly pushed up international coffee prices.

At present, besides Brazil, the export volumes of several other coffee-producing countries have also been affected. For example, Honduras, the world's fourth-largest Arabica producer, was hit by Tropical Storm Sara, which triggered flooding and led to the declaration of a 30-day nationwide state of emergency. Infrastructure in various areas was severely damaged, and agricultural equipment was also destroyed. In Lempira department alone, cumulative losses reached 400,000 quintals (about 20,000 tons) of coffee crops, and other regions also suffered heavy losses.

Because the coffee industries of multiple countries have been affected to varying degrees, especially in the most important country, Brazil, even though the EU has confirmed that it will delay the implementation of the EUDR by one year and Colombia, the second-largest Arabica producer, has seen some growth in coffee production, futures prices remain high, and this situation may continue into 2025.

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The above content is compiled by CoffeeHunters, a coffee news website.