Rain Forecasts for Brazil Weigh on Arabica Coffee Prices

Coffee prices settled mixed, with arabica falling sharply due to rain forecasts in Brazil's key growing regions, while robusta posted a 3-week high. Arabica prices are supported by critically low ICE inventories, exacerbated by US tariffs on Brazilian imports, and concerns over potential La Niña-induced dry weather, despite a recent increase in global coffee exports. Robusta's gains occurred amidst projections for a bumper crop and increased exports from Vietnam, which could pressure prices. The market faces conflicting supply outlooks, with USDA forecasting record global production for 2025/26 and increased ending stocks, yet Volcafe projects a widening arabica deficit for the fifth consecutive year.

Analysis

December arabica coffee (KCZ25) closed down 2.04% on Thursday, primarily driven by forecasts for up to 30mm of rain in Brazil's Minas Gerais, which is expected to promote coffee flowering. Conversely, November robusta coffee (RMX25) closed up 0.57%, reaching a 3-week high, despite increased export volumes from Vietnam. This highlights a short-term divergence in price drivers for the two coffee varieties.

Arabica prices continue to find support from critically low ICE inventories, which fell to a 1.5-year low of 519,534 bags. The 50% US tariffs on Brazilian imports are exacerbating US supply tightness, as American buyers void contracts for a significant source of unroasted coffee. Further bullish sentiment stems from NOAA's 71% likelihood of a La Niña system, threatening Brazil's 2026/27 crop, and Conab's recent 4.9% cut to Brazil's 2025 arabica crop estimate.

Robusta, however, faces potential long-term pressure from Vietnam's projected 2025/26 bumper crop, expected to climb 6% year-over-year to a 4-year high of 1.76 MMT. While the USDA FAS forecasts a 2.5% increase in 2025/26 world coffee production to a record 178.68 million bags and a 4.9% rise in ending stocks, Volcafe projects a widening global arabica deficit of 8.5 million bags for 2025/26, marking the fifth consecutive deficit. This creates a complex and conflicting supply outlook.

Key Decisions for Investors

• Monitor Brazilian weather developments and the ongoing impact of US tariffs on arabica supply, given critically low ICE inventories and Volcafe's widening deficit projections.
• Evaluate potential shorting or hedging strategies for robusta, considering Vietnam's strong export growth and projected bumper crop.
• Reconcile the conflicting global supply forecasts from USDA FAS and Volcafe to inform long-term positioning and potential arbitrage opportunities between arabica and robusta futures.