Coffee Prices Plummet on an Improved Supply Outlook

Coffee prices are sharply lower, with arabica falling to a 5-month low and robusta to a 1-year low, driven by an improved supply outlook from Brazil's ongoing harvest; Safras & Mercado reported Brazil's 2025/26 harvest 35% complete as of June 11. While recent rainfall in Brazil has eased dryness concerns, weighing on prices, robusta has some support from ICE-monitored inventories falling to a 1-month low, contrasting with arabica inventories near a 4-1/2 month high. Conflicting factors include reduced Vietnam robusta production due to drought versus USDA forecasts of increased Vietnam output in 2025/26, adding to market uncertainty.

Analysis

Coffee prices are experiencing significant downward pressure, with July arabica (KCN25) declining by 3.31% to a 5-month low and July ICE robusta (RMN25) plummeting 6.97% to a 1-year low, primarily attributed to an improved supply outlook driven by Brazil's ongoing coffee harvest. As of June 11, Safras & Mercado reported Brazil's 2025/26 harvest was 35% complete, aligning with the 5-year average, though slightly behind last year's 37%; this included 49% completion for robusta and 26% for arabica, the latter slowed by heavy rains. Further reinforcing harvest progress, Brazil's Cooxupe coffee co-op indicated its members' harvest was 13.7% complete as of last Tuesday, comparable to last year. This bearish sentiment is compounded by the USDA's Foreign Agricultural Service (FAS) forecast on May 19, projecting a 0.5% year-over-year increase in Brazil's 2025/26 coffee production to 65 million bags and a 6.9% rise in Vietnam's 2025/26 output to 31 million bags. Recent beneficial rainfall in Brazil's Minas Gerais region, which received 10.6 mm of rain (131% of the historical average) for the week ending June 14, has also eased dryness concerns, further weighing on prices. However, the market presents mixed signals: ICE-monitored arabica coffee inventories stood at 859,389 bags as of Tuesday, modestly below a recent 4.5-month high, while ICE-monitored robusta coffee inventories fell to a 1-month low of 5,150 lots today. Brazil's May green coffee exports also saw a sharp decline of 36% year-over-year to 2.8 million bags, a potentially bullish price factor. Vietnam, the largest robusta producer, experienced a 20% drop in 2023/24 coffee production to 1.472 MMT due to drought, and its 2024 coffee exports fell 17.1% year-over-year to 1.35 MMT, with January-May 2025 exports also down 1.8% year-over-year. The Vietnam Coffee and Cocoa Association cut its 2024/25 production estimate to 26.5 million bags, contrasting with the USDA FAS's May 19 projection of a 7% year-over-year climb in Vietnam's 2025/26 robusta crop to a 4-year high of 30 million bags. Globally, the USDA FAS projects a 4.0% increase in 2024/25 world coffee production to 174.855 million bags, but forecasts 2024/25 ending stocks to fall by 6.6% to a 25-year low of 20.867 million bags. Adding to long-term supply concerns, Volcafe projects a widening global 2025/26 arabica coffee deficit of -8.5 million bags, the fifth consecutive year of deficits.

Key Decisions for Investors

• Given the current strong bearish momentum driven by Brazil's harvest progression and favorable weather, investors should exercise caution with new long positions in coffee futures, particularly arabica, in the immediate term.
• Investors should monitor the divergence between arabica and robusta markets; robusta may find more support due to its lower ICE-monitored inventories and recent Vietnamese production issues, potentially offering spread trading opportunities or relative value plays.
• Closely track upcoming harvest data from Brazil, revised production forecasts for Vietnam, inventory movements for both coffee types, and evolving weather patterns, as conflicting data points, such as the USDA's robusta forecast versus Vietnam's industry estimates, suggest continued market volatility.
• Consider the longer-term bullish implications of Volcafe's projected multi-year arabica deficits and the USDA FAS's forecast for historically low global ending stocks, which could provide a floor for prices or trigger a rally once the current Brazilian harvest pressure alleviates.