Coffee Prices Surge Amid Supply Concerns and Weather Challenges

Coffee prices are rising sharply as supply issues and adverse weather conditions affect production. Arabica coffee has reached a 2-1/2 week high, supported by a decline in Brazil's crop forecasts and a strong Brazilian real. Investors should watch for potential price fluctuations in coffee stocks.

Date: 24-04-2025

AI Rating: 7

Market Response to Supply and Weather Conditions
Recent developments in the coffee market indicate a significant impact on pricing due to supply constraints and adverse weather conditions. The rise in coffee prices, particularly arabica, can be attributed to forecasts indicating a decline in Brazil's coffee production due to dry weather affecting coffee yields. Rabobank’s prediction of a 13.6% year-on-year drop in Brazil's arabica coffee crop for 2025/26 to 38.1 million bags underscores the ongoing supply challenges. Such data points are crucial for investors as they reflect a tightening supply which can lead to higher prices.

Impact of Currency and Exports
The sharp appreciation of the Brazilian real is an additional factor affecting coffee prices, as it discourages export sales from Brazil, the world’s largest coffee producer. This could create further upward pressure on prices due to reduced availability in international markets. Moreover, decreases in green coffee exports were reported, with a 26% year-on-year decline impacting the supply chain. This context presents an opportunity for investors to reassess their positions in coffee-related equities.

Long-term Outlook and Risks
While short-term forecasts may indicate price surges, longer-term concerns remain. The expectation that the global coffee surplus will widen in the 2025/26 season introduces another layer of complexity. Additionally, the USDA’s mixed outlook notes an anticipated increase in global coffee production but highlights a significant deficit for arabica coffee, particularly from Brazil. This discrepancy can significantly affect the stocks of companies heavily invested in these commodities. Investors are advised to take a measured approach, given the volatility and uncertainties posed by changing weather conditions and global trade dynamics.

Stocks: DEO SJM