Coffee: Weather and Macroeconomic Factors Remain Constructive
Current Market Snapshot
Coffee futures on the Intercontinental Exchange (ICE) have been steadily rising, with intraday price levels continuing to push new multi-year highs. Arabica recently reached their highest prices on record, largely on tight supply; see the barchart price chart below which tracks prices back to 1973. Global supply concerns are currently driving the discussion, and while there may be bearish factors that lead to short term retracement, the extended view is certainly one that could remain constructive to price.
Changes in Supply Expectations
Prices are currently reflecting the perceived shortfall in global stocks. Last week, CONAB, Brazil’s state run crop forecasting and agricultural intelligence agency, released their revised domestic coffee production estimates for the 2025/26 crop year and is calling for a 4.4% production decrease year-over-year with projected output falling to 51.8 million bags. This follows production numbers for 2024/25 that have already been revised downward.
On the global front, while total current marketing year output as estimated by the USDA Foreign Agricultural Service has accounted for a y/y increase in supply (2024/25 v. 2023/24 — see USDA FAS table below), dry weather contributed to impacts during flowering and filling stages in Brazil. Further, global demand remains strong as reflected by stocks to use ratios and export statistics through the end of 2024. In addition, the December 2024 FAS update brought global output down from the earlier June estimate, and when this is coupled with stronger demand for product, the expectation for physical stocks to remain tight seems warranted.
A proxy price tracking index has been constructed which weighs factors ranging from key weather and biophysical variables in primary production origins, to macroeconomic factors including other commodity prices, foreign exchange and demand expectations. When these variables are used to construct a forward looking price tracking model, it should be noted that the combination of weather and economic drivers support a bullish outlook for at least the first half of 2025. See the chart below for historical performance of the tracking index from 2011–2024.
First half 2025 Outlook
Brazil has been reporting rain events in important origins across the Centre-South production belts (primarily Minas Gerais, Sao Paulo and Parana). In addition, recent behavior in the USD index and the USD/Brazilian Real index has forced some liquidation among long positions. Given the extended range view, this could provide an attractive entry point for long positions. While these factors should ease some of the upward price pressure in the short term, the longer term picture still should be viewed with caution. Recent rains in Minas Gerais notwithstanding, the outlook for the next few months is for a lower precipitation regime vs. last year. The chart below from Weather Trends 360 highlights the expectations for an unfavorable rainfall pattern to persist, and this coupled with an uncertain economic environment could certainly support a constructive pattern to persist through mid year.
