Myra P. Saefong

(note: Weather maps and BestWeather spider are by Jim Roemer and added to this article by BestWeather, Inc.)

Coffee futures rallied last month, with the benchmark robusta variety climbing to a record and prices for arabica at their highest since 2022. But analysts suggest that prices for both have topped out for the year as weather conditions in Vietnam look to improve.

Robusta coffee futures peaked in April and have been selling off since, said Jake Hanley, managing director and senior portfolio specialist at Teucrium.

Drought in Vietnam, the world’s largest robusta coffee grower, is curtailing production, “driving local prices higher, incentivizing farmers to hold on to their beans rather than sell them,” he told MarketWatch. He cited a Bloomberg report that said Vietnamese robusta coffee farmers have failed to deliver up to 200,000 metric tons of beans under contract.

The coffee market is a “weather market and volatility should be expected,” said Hanley, but there is talk that drought conditions in the Central Highlands in Vietnam will let up by the end of this month, he said. 

On the ICE Futures Europe exchange, the most-active July contract for robusta coffee D00, +0.09%DN24, +0.82% hit a record intraday high at $4,575 per metric ton on April 25, based on data going back to 2008, according to Dow Jones Market Data.  Based on Wednesday’s intraday trading, it was around 3.3% lower for the week, but has climbed 12.4% year to date.Robusta coffee prices have dropped from a record highSource: FactSet

Robusta and arabica are the two most common types of coffee beans produced and sold, according to Bean & Bean Coffee Roasters. Robusta coffee makes up 40% of global coffee production is commonly used to make instant coffee, and is cheaper to produce, while arabica makes up about 60% of global coffee production and requires more energy and resources to grow.

The rise in robusta coffee prices to all-time highs “inadvertently” helped Arabica “rally more than it should have,” said James Roemer, the publisher of the WeatherWealth newsletter.

Since then, there have been forecasts for rain in Vietnam — that, along with the stronger U.S. dollar and record long speculative position in coffee, “caused a major washout” for prices, he said.

Looking ahead, without a frost scare in Brazil, prices for arabica could trend to the $1.50 to $1.70 area come July or August, said Roemer.

For robusta, following expected rains over the next two weeks, the crops in Vietnam could still be hit by dryness this summer as weak El Niño conditions exist, he said. Most forecasters are calling for La Niña conditions, which could bring heavy rainfall, but he does not expect that until after September.

Meanwhile, Roemer said Chinese demand has not been a factor in coffee’s rise this year, with demand having been weak against the backdrop of a record-warm global winter.

Coffee is technically weak, Roemer said, and the market will “need to see the dryness return in June and July in Vietnam and/or a Brazil freeze scare to see a new bull market again.”

Jim Roemer’s Weather Spider featured for grains, soft and natural gas commodities each week in his WeatherWealth newsletter