Indonesia aims for harvest recovery, but global coffee deficit persists in 2024-25

In a report, Hedgepoint Global Markets analyzes the 24/25 harvest in Indonesia, the third largest producer of Robusta in the world, which has started to gain pace in recent weeks. It also addresses the scenarios for Vietnam and Brazil.

“After the drop in 23/24, due to adverse weather, expectations are for a slight recovery in Indonesia, reflecting the greater volume of rain during the development of this season. Therefore, our expectations, so far, are a production of 11,2 M scs in 24/25, with an increase of 1,2 M scs in relation to 23/24. Activities should reach their peak during this month and August”, points out Laleska Moda, Coffee analyst at Hedgepoint.

“On the export side, in 23/24, the country fell sharply, reflecting the lower supply. The 24/25 season also started with low shipments, with the first two months accumulating just 464,4 thousand scs, a drop of 35,4% compared to the same period in 23/24”, he continues.

According to the analyst, however, “the expectation is that exports will recover in the coming months, as the harvest intensifies, with our initial expectations pointing to a 13% recovery in total shipments in 24/25 compared to the last harvest, ending at 7,8 M scs”.

Therefore, monitoring the development of Indonesian exports in the coming months is essential to confirm the recovery of production and exports in this cycle.

It is worth pointing out that, according to Laleska, even with the lowest shipments to date, the prospect of greater supply in Indonesia has changed market sentiment, with the country's differentials shrinking this week, as the harvest progresses. There are reports of premium offered as high as $600 in the September LN contract, below the previous week's levels.

Vietnam and Brazil

The drop in prices was also observed in other Robusta origins, such as Vietnam. In the latter, it was also reported that buyers remain more reserved due to the high prices asked by producers.

“Expectations, however, are that negotiations will remain cooler in the coming weeks, as Vietnamese stocks remain low and the harvest of the 24/25 crop should only begin in a few months, with new grains arriving on the market in end of 2024”, he notes.

It is worth remembering that, despite the improvement in the weather from May onwards in Vietnam, the drought at the beginning of 2024 could still impact production in 24/25, with Hedgepoint estimates, so far, pointing to a harvest slightly smaller than last season, around 27 M scs in this new cycle.

“Given this scenario, although we expect a certain correction in the current levels of Robusta coffee as the harvest in Indonesia progresses, the general picture points to sustained prices in the medium term. Even with the expected recovery in the latter country, the lower production of Robusta in other origins should limit supply at 24/25”, he says.

In addition to the smaller harvest in Vietnam, in Brazil, the lower sieve and yield in grain processing should also lead to a smaller 24/25 harvest than initially expected.

“Our forecast is for a total harvest of 66 M scs, compared to the 67,4 M scs initially predicted. The reduction should come from both Robusta and Arabica, even though the supply of the latter should still be higher than 23/24. Therefore, our models indicate that the increase in arabica production will not be sufficient for the expected reduction in Robusta, which could lead to the fourth consecutive year of a global coffee deficit, adding support to prices in the medium term”, he highlights.

In summary, the 24/25 harvest is starting to gather pace in Indonesia, with the peak expected for this month and August. As work gains momentum, a greater volume of Robusta coffee reaches the market, putting pressure on differences in the country and from other origins. Even with the poor performance of Indonesia's exports so far, an increase in shipments is expected this harvest, due to the expectation of a recovery in the country's supply this year.

Despite the more optimistic scenario in this regard, the general picture still points to a coffee deficit in the 24/25 season, due to the reduction in Robusta production. In Vietnam, the drought until April is expected to still lead to lower production in 24/25.

Furthermore, stocks in the Asian country remain very low, due to the fall in 23/24, which should limit negotiations, as grains from the 24/25 harvest will only reach the market at the end of this year. In Brazil, adverse weather in 2023 and 2024 also led us to revise our numbers downwards. Therefore, the greater production of Arabica in this harvest should not be enough to cover the bottleneck left by Robusta.