Coffee Prices Retreat on Brazil Harvest Pressures

Coffee futures declined sharply Tuesday, with arabica hitting a 1-3/4-month low and robusta a 7-month low, driven by ongoing harvest pressure in Brazil where the 2025/26 harvest is nearly complete. Increased global production forecasts, particularly from Brazil and Vietnam, and rising ICE coffee inventories are weighing on prices amid concerns that tariffs could pressure sales volumes; however, potential weather-related yield reductions in Brazil could provide some price support.

Analysis

Coffee prices experienced a notable decline, with July arabica futures (KCN25) reaching a 1-3/4-month low and July ICE robusta futures (RMN25) hitting a 7-month low. This downturn is primarily attributed to ongoing harvest pressures in Brazil, where Safras & Mercado reported the 2025/26 coffee harvest was 20% complete by May 28, slightly behind the five-year average. Further weighing on prices are multiple forecasts pointing to increased global coffee production for upcoming seasons: the USDA's Foreign Agricultural Service (FAS) projects Brazil's 2025/26 output to rise 0.5% year-over-year (y/y) to 65 million bags and Vietnam's 2025/26 output to increase 6.9% y/y to 31 million bags. Supporting this, Safras & Mercado revised its Brazil 2025/26 production estimate upwards to 65.51 million bags, and Conab raised its Brazil 2025 production estimate to 55.7 million bags. Rising ICE-monitored inventories, with robusta at an 8-1/2 month high (5,438 lots) and arabica at a 4-month high (892,468 bags), also signal ample immediate supply. Demand-side concerns, highlighted by major importers Starbucks, Hershey, and Mondelez International regarding potential US tariff impacts raising prices and pressuring sales volumes, add to the bearish sentiment. However, several countervailing factors exist. Somar Meteorologia reported no rain in Brazil's key Minas Gerais arabica region for the week ending May 31, raising concerns about future crop yields. Cecafe data showed a significant -28% y/y drop in Brazil's April green coffee exports. For robusta, Vietnam's 2023/24 crop dropped by -20% due to drought, its smallest in four years, and its 2024 coffee exports fell -17.1% y/y. Critically, the USDA FAS 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. This complex interplay of immediate supply pressures against longer-term supply risks and weather uncertainties creates a mixed outlook for coffee prices.

Key Decisions for Investors

• Investors should closely monitor Brazilian weather developments, particularly rainfall in Minas Gerais, as adverse conditions could significantly tighten arabica supply and potentially reverse recent price declines.
• Given the expressed concerns about US import tariffs, re-evaluate exposure to coffee-reliant consumer companies such as Starbucks (SBUX), Hershey (HSY), and Mondelez (MDLZ) for potential margin pressure or reduced sales volumes.
• Strategically assess coffee futures by weighing current bearish factors like harvest progress and rising inventories against bullish long-term forecasts of critically low ending stocks and persistent arabica deficits.
• Track upcoming reports on Vietnam's robusta production and export volumes, as continued tightness in this segment could offer distinct support for robusta prices, potentially diverging from arabica trends if global production forecasts for robusta elsewhere are not fully realized.