Coffee Prices Pressured by Rain in Brazil

Coffee futures declined Tuesday, with arabica reaching a 2-1/4 month low, driven by easing dryness concerns in Brazil due to recent rainfall in key growing regions like Minas Gerais. The ongoing Brazilian coffee harvest, slightly behind last year's pace but in line with the 5-year average, continues to exert downward pressure, despite smaller exports from Brazil. While robusta inventories are low, arabica inventories remain elevated, contributing to the overall bearish sentiment, though longer-term projections indicate potential arabica deficits.

Analysis

Coffee prices have declined, with July arabica (KCN25) reaching a 2-1/4 month low, primarily due to improved weather conditions in Brazil and the ongoing harvest exerting downward pressure. Recent rainfall in Brazil's Minas Gerais region, reported by Somar Meteorologia at 131% of the historical average for mid-June, has eased dryness concerns. The Brazilian coffee harvest is progressing; Cooxupe, Brazil's largest coffee cooperative, indicated its members' harvest was 13.7% complete, comparable to last year, while Safras & Mercado reported the broader 2025/26 harvest at 35% complete as of June 11, aligning with the 5-year average. This supply-side pressure is further underscored by the USDA's Foreign Agricultural Service (FAS) forecast for 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. Arabica prices are also weighed down by ICE-monitored inventories, which stood at 859,389 bags, near a 4-1/2 month high. In contrast, robusta coffee (RMN25), despite recent lows, finds some support from ICE-monitored robusta inventories falling to a 1-month low of 5,157 lots. Bullish undercurrents for robusta also stem from Vietnam's significantly reduced 2023/24 crop (down -20% y/y due to drought) and lower exports (2024 exports down -17.1% y/y; Jan-May 2025 exports down -1.8% y/y). Adding to mixed signals, Brazil's May green coffee exports fell sharply by -36% y/y. While near-term sentiment is bearish due to harvest flows, longer-term projections, such as Volcafe's forecast of a widening global 2025/26 arabica deficit of -8.5 million bags and the USDA's projection of 2024/25 global ending stocks falling to a 25-year low, suggest underlying supply tightness.

Key Decisions for Investors

• Investors should closely monitor Brazilian weather patterns and harvest progress reports, as these are the dominant short-term drivers for arabica coffee prices.
• Consider the current bearish sentiment stemming from Brazil's harvest against long-term bullish factors like projected arabica deficits and historically low global ending stocks when assessing positions.
• Evaluate robusta's relative strength, given tight ICE inventories and reduced Vietnamese output and exports, which may present different trading dynamics compared to arabica.
• Be prepared for potential price volatility as the market reconciles near-term supply availability from the Brazilian harvest with forecasts of tightening global supplies and multi-year deficits for arabica.