Brazil Harvest Pressures Weigh on Coffee Prices

Coffee prices are declining, with arabica hitting a 1-3/4 month low and robusta a 7-month low, driven by harvest pressure in Brazil, where the 2025/26 harvest is nearly complete. Increased production forecasts from the USDA for Brazil and Vietnam, coupled with rising ICE coffee inventories, are contributing to the downward pressure; however, concerns about dry weather in Brazil's arabica-growing regions could provide some price support. Conflicting factors, including reduced coffee exports from Brazil and lower robusta production in Vietnam due to drought, create uncertainty in the market.

Analysis

Coffee prices are experiencing downward pressure, with July arabica (KCN25) declining -0.58% to a 1-3/4 month low and July ICE robusta (RMN25) down -0.60% to a 7-month low. This movement is primarily attributed to harvest progression in Brazil, where the 2025/26 coffee harvest was 20% complete as of May 28, and multiple forecasts indicating increased global production. 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 by 6.9% y/y to 31 million bags, with Safras & Mercado and Conab also revising Brazilian production estimates upwards. Augmenting this bearish sentiment are rising ICE-monitored inventories: robusta stocks reached an 8-1/2 month high and arabica stocks a 4-month high.

However, several countervailing factors introduce complexity to the outlook. Adverse weather conditions, specifically a lack of rain in Brazil's key arabica-growing region of Minas Gerais in late May, pose a threat to crop yields and support prices. This concern is echoed by Volcafe's projection of a significant global arabica deficit of 8.5 million bags for 2025/26, marking the fifth consecutive year of deficits. Furthermore, recent export data shows a reduction in shipments from both Brazil (April green coffee exports down -28% y/y) and Vietnam (2024 coffee exports down -17.1% y/y), providing some price support. Vietnam's robusta production for the 2023/24 crop year significantly dropped by 20% due to drought. Adding to the bullish undercurrent, the USDA FAS forecasts global 2024/25 ending stocks will decrease by 6.6% to a 25-year low. Demand-side uncertainties also persist, with major importers like Starbucks, Hershey, and Mondelez International highlighting potential pressures on sales volumes from US import tariffs.

Key Decisions for Investors

• Investors should closely monitor upcoming Brazilian weather reports for Minas Gerais and ICE inventory figures, as these could significantly alter the current price trajectory influenced by harvest pressure and broad production forecasts.
• Differentiate strategies for arabica, given its potential structural deficits and substantial weather sensitivity in Brazil, versus robusta, where Vietnam's drought-reduced output and lower exports contrast with Brazil's expected robusta production gains.
• Assess the risk exposure of coffee-reliant consumer companies such as Starbucks, Hershey, and Mondelez, which have communicated concerns about demand pressures stemming from potential US import tariff-induced price increases and their impact on sales volumes.
• Despite current bearish signals from harvest progress and production forecasts, investors should be prepared for heightened price volatility, as the USDA's projection of global coffee ending stocks falling to a 25-year low in 2024/25 could significantly amplify market reactions to any further supply disruptions.