Coffee Prices Settle Higher as Brazilian Real Strength Sparks Short Covering

Coffee futures rose Wednesday, fueled by a stronger Brazilian real which curbed export selling from Brazil. This uptick follows recent pressure on coffee prices driven by harvest progress in Brazil, as Safras & Mercado reported the 2025/26 harvest was 20% complete as of May 28, slightly below the 5-year average. Despite this recent rise, concerns about ample supplies and increased production forecasts from the USDA for Brazil and Vietnam continue to weigh on the market, while demand concerns are also present as global importers anticipate higher prices due to tariffs.

Analysis

Coffee prices experienced a short-term rebound, with July arabica (KCN25) closing up 1.55% and July robusta (RMN25) up 0.83%, primarily driven by a rally in the Brazilian real to a 1-1/2 week high against the US dollar, which discouraged Brazilian export selling and triggered short covering. This uptick follows a period of price weakness, where arabica reached a 1-3/4 month low and robusta a 7-month low, attributed to harvest pressures in Brazil, with the 2025/26 harvest reported by Safras & Mercado at 20% complete as of May 28, slightly trailing the five-year average of 21%. The market remains subject to conflicting fundamental pressures: bearish sentiment stems from projections of increased 2025/26 coffee production from Brazil (+0.5% y/y to 65 million bags, USDA FAS) and Vietnam (+6.9% y/y to 31 million bags, USDA FAS), alongside rising ICE-monitored robusta inventories to an 8-1/2 month high and arabica inventories to a 4-month high. Further weighing on prices are upward revisions to Brazil's 2025/26 production estimates by Safras & Mercado (to 65.51 million bags) and Conab's 2025 estimate (to 55.7 million bags). However, bullish factors include concerns over dry weather in Brazil's Minas Gerais region, a significant drop in Brazil's April green coffee exports (-28% y/y), and substantially reduced Vietnamese robusta output due to drought (2023/24 crop -20% to its smallest in four years). Vietnam's 2024 exports are also down (-17.1% y/y), and its 2024/25 production estimate was cut by the Vietnam Coffee and Cocoa Association. Notably, Volcafe projects a widening global 2025/26 arabica deficit of -8.5 million bags, the fifth consecutive deficit, while the USDA FAS forecasts 2024/25 global ending stocks to fall by -6.6% to a 25-year low. Demand-side concerns persist, as major importers like Starbucks, Hershey, and Mondelez International anticipate that potential US tariffs could elevate prices and dampen sales volumes.

Key Decisions for Investors

• Investors should closely monitor Brazilian weather patterns and harvest progress, as these are key near-term price drivers for coffee futures.
• Investors ought to assess the impact of Brazilian real fluctuations on export flows and futures pricing, given its recent significant influence on short-term price movements.
• Consideration should be given to the divergent production forecasts (e.g., USDA vs. Volcafe) and inventory data, balancing projections of increased output from key producers like Brazil and Vietnam against reports of significant deficits and historically low ending stocks.
• The potential impact of US tariffs on demand from major coffee consumers such as Starbucks, Hershey, and Mondelez, and consequently on overall coffee prices, warrants careful observation.