Coffee Prices Pressured by the Outlook for Ample Supplies

Coffee prices are declining, with arabica and robusta futures hitting multi-week lows due to rising ICE inventories and forecasts of increased coffee production in Brazil and Vietnam for the 2025/26 season; the USDA projects Brazil's production to climb 0.5% y/y to 65 million bags and Vietnam's to climb 6.9% y/y to 31 million bags. Demand concerns are also weighing on prices as global commodity importers anticipate price increases due to US tariffs; however, limited near-term downside exists due to concerns about poor weather in Brazil potentially impacting crop size.

Analysis

Coffee prices are experiencing downward pressure, with July arabica and robusta futures reaching five-week and six-week lows, respectively. This decline is primarily attributed to an increase in ICE-monitored inventories—robusta stocks reaching an 8-month high of 5,438 lots and arabica inventories climbing to a 3.5-month high of 883,197 bags—coupled with forecasts for higher global coffee production in the 2025/26 season. The USDA's Foreign Agriculture Service (FAS) projects Brazil's output to rise +0.5% year-over-year to 65 million bags and Vietnam's to increase +6.9% to 31 million bags. Consulting firm Safras & Mercado also revised its Brazil 2025/26 coffee production estimate upwards to 65.51 million bags. Demand-side concerns further weigh on prices, as major importers including Starbucks, Hershey, and Mondelez International anticipate that the baseline 10% US import tariff could elevate costs and dampen sales volumes. However, several countervailing factors may limit further price declines. Poor weather in Brazil's key arabica-growing region of Minas Gerais, which received only 2.5 mm of rain (12% of the historical average) in the week ended May 17, raises concerns about the upcoming crop yield. This is compounded by a reported -28% year-over-year drop in Brazil's April green coffee exports to 3.05 million bags, and a -15.5% y/y fall in Jan-Apr exports. Vietnam, the largest robusta producer, saw its 2023/24 crop fall by -20% to 1.472 MMT due to drought, with its 2024 coffee exports down -17.1% y/y. Looking ahead, the USDA forecasts global 2024/25 ending stocks to fall by -6.6% to a 25-year low of 20.867 million bags, and Volcafe projects a widening global 2025/26 arabica coffee deficit of -8.5 million bags, marking the fifth consecutive year of such deficits.

Key Decisions for Investors

• Investors should acknowledge the current tension between bearish short-term supply indicators, such as rising ICE inventories and optimistic 2025/26 production forecasts from Brazil and Vietnam, and bullish longer-term factors, including adverse Brazilian weather, critically low global ending stocks forecasted by the USDA, and Volcafe's projection of a deepening arabica deficit, which collectively imply potential for significant price volatility.
• Closely monitor near-term developments in Brazilian weather patterns, actual production and export figures from both Brazil and Vietnam (especially given Brazil's recent -28% y/y drop in April exports and Vietnam's -20% crop reduction in 2023/24), and ongoing ICE inventory movements, as these are critical catalysts for future price direction.
• Evaluate the potential impact of US tariff policies on coffee demand and the subsequent margin pressure on coffee-reliant companies such as Starbucks (SBUX), Hershey (HSY), and Mondelez (MDLZ), while factoring in the structural implications of a potential fifth consecutive year of global arabica coffee deficit.