Coffee Prices Retreat on the Prospects of Reduced US Tariffs

Coffee prices are experiencing a third consecutive day of declines, hitting two-week lows, primarily driven by expectations of potential U.S. tariff reductions on coffee imports and robust supply forecasts. StoneX projects a significant 29% year-over-year increase in Brazil's 2026/27 coffee production to 70.7 million bags, including 47.2 million bags of arabica, while Vietnam's 2025/26 output is expected to climb 6% to a four-year high, further bolstered by recent favorable rainfall in Brazil. This bearish sentiment currently outweighs concerns over shrinking ICE coffee inventories, which have been impacted by U.S. tariffs on Brazilian coffee, and earlier forecasts indicating potential La Niña-induced dryness or reduced crop estimates from other agencies.

Analysis

Coffee futures, specifically December arabica (KCZ25) and January robusta (RMF26), are experiencing a third consecutive day of declines, with KCZ25 down -1.32% and RMF26 down -3.62%, reaching two-week lows. This bearish trend is primarily driven by expectations of potential US tariff reductions on coffee imports, following Treasury Secretary Bessent's hint of "substantial announcements" on non-US grown crops.

Significant supply-side projections are further pressuring prices. StoneX's initial 2026/27 forecast for Brazil anticipates a substantial 29% year-over-year increase in total coffee production to 70.7 million bags, including 47.2 million bags of arabica, supported by recent favorable rainfall in Minas Gerais. Concurrently, Vietnam's 2025/26 coffee production is projected to climb 6% year-over-year to a four-year high of 1.76 million metric tons, with exports already up 13.4% year-over-year in Jan-Oct 2025.

Despite these bearish drivers, some factors offer underlying support, such as ICE-monitored arabica inventories falling to a 1.75-year low and robusta inventories to a 3.75-month low, exacerbated by 50% US tariffs on Brazilian imports which have reduced US purchases by 52%. However, the market's current sentiment remains moderately negative and bearish, as the robust production outlooks and tariff reduction prospects are outweighing these inventory concerns and previous crop estimate cuts.

Key Decisions for Investors

• Investors should closely monitor official announcements regarding potential US tariff reductions on coffee, as such policy changes could significantly impact import costs and further depress futures prices.
• Given the robust supply forecasts from StoneX for Brazil (29% y/y increase for 2026/27) and Vietnam (6% y/y increase for 2025/26), investors should assess the potential for sustained oversupply in the medium to long term.
• While current sentiment is bearish, investors should watch for any significant changes in ICE coffee inventory drawdowns or shifts in US import policies regarding Brazilian coffee, as these could provide intermittent price support.