Brazil Harvest Pressures Weigh on Coffee Prices

Coffee prices declined sharply on Tuesday as Brazil's Cooxupe coffee co-op reported its members' harvest was 13.7% complete, slightly ahead of last year, increasing supply pressures. The strength of the Brazilian real initially supported prices, but recent above-normal rainfall in Minas Gerais, coupled with Safras & Mercado's report of Brazil's 2025/26 harvest being 28% complete, weighed on the market amid forecasts of increased global coffee production from Brazil and Vietnam.

Analysis

Coffee prices experienced a significant downturn, with July arabica (KCN25) falling -1.80% and July ICE robusta (RMN25) declining -2.50%, primarily driven by harvest pressures in Brazil. Cooxupe, Brazil's largest coffee cooperative, reported its harvest as 13.7% complete, slightly ahead of last year's 13.6%, while Safras & Mercado indicated the broader 2025/26 Brazilian harvest was 28% complete as of June 4, marginally above the five-year average of 27%. Although an initial strengthening of the Brazilian real to an 8-month high against the dollar provided temporary support by discouraging exports, this was overshadowed by bearish supply factors. These include recent above-normal rainfall in Brazil's Minas Gerais region (207% of historical average for the week ending June 7), easing dryness concerns, and upward revisions to production forecasts. The USDA's Foreign Agricultural Service (FAS) projects Brazil's 2025/26 coffee production to increase by 0.5% y/y to 65 million bags and Vietnam's output to rise by 6.9% y/y to 31 million bags. Further, Safras & Mercado and Conab also raised their Brazilian production estimates. Rising ICE-monitored inventories, with robusta reaching an 8-3/4 month high and arabica a 4-1/4 month high in late May, also contribute to the bearish sentiment. Demand concerns have emerged, with major importers like Starbucks, Hershey, and Mondelez International citing potential US tariffs as a factor that could raise prices and depress sales volumes. Despite these pressures, some countervailing factors exist, including a reported -28% y/y drop in Brazil's April green coffee exports and a -20% reduction in Vietnam's 2023/24 robusta crop due to drought. Moreover, while the USDA FAS projects a 4.0% y/y increase in world coffee production for 2024/25, it also forecasts 2024/25 ending stocks to fall by -6.6% to a 25-year low. Volcafe presents an even tighter outlook for arabica, projecting a global deficit of -8.5 million bags for 2025/26, marking the fifth consecutive year of deficits, and significantly cut its 2025/26 Brazil arabica production estimate due to drought impacts.

Key Decisions for Investors

• Expect continued downward pressure on coffee futures in the near term, given the current Brazilian harvest momentum and optimistic global production forecasts from key regions.
• Monitor fluctuations in the Brazilian real; sustained currency strength could temper export volumes and offer some price support, although prevailing supply dynamics currently appear to be the dominant market driver.
• Evaluate the divergent long-term supply outlooks, particularly comparing the USDA's overall production increase against Volcafe's projected arabica deficits and lower ending stock forecasts, while also assessing potential demand headwinds for coffee-consuming companies like Starbucks (SBUX), Hershey (HSY), and Mondelez (MDLZ) stemming from U.S. tariff concerns.