Coffee Sharply Higher on Dryness in Brazil and Record Low Robusta Inventories

March arabica coffee on Tuesday closed up +4.75 (+2.51%), and Mar ICE robusta coffee closed up +61 (+1.86%) heading back toward its highest in at least 16 years hit in mid-January.

Supplies remain extremely tight, with dealers noting that premiums in top robusta producer Vietnam were unchanged over the past week despite high futures prices.

Coffee prices on Tuesday rallied sharply, with arabica climbing to a 1-month high and robusta posting a new contract high.  Excessive dry conditions in Brazil may damage coffee crops and support arabica coffee prices.  Somar Meteorologia reported Monday that Brazil’s Minas Gerais region received 25 mm of rainfall in the past week, or 53% of the historical average.  Minas Gerais accounts for about 30% of Brazil’s arabica crop.

Dealers said high prices for robusta futures are as well supporting arabica prices, due to the overall tightness of the market.

Dealers noted improved conditions in top producer Brazil, with recent rains over the main coffee-producing areas and more precipitation expected in the days ahead.

Meanwhile, low coffee inventories are bullish for prices.  ICE-monitored robusta coffee inventories Tuesday fell to a record low of 2,996 lots.  ICE-monitored arabica coffee inventories fell to a 24-year low of 224,066 bags on November 30 and were modestly above that at 250,569 bags as of Tuesday.

An increase in Vietnam’s coffee exports is bearish for robusta prices after Vietnam’s General Statistics Office on Monday reported that Vietnam’s Jan coffee exports rose +47.6% y/y to 210,000 MT.  Vietnam is the world’s largest producer of robusta coffee beans.