Coffee Prices Slip on Forecasts for Rain in Brazil

Coffee prices are currently declining, pressured by forecasts of rain in Brazil that could alleviate dry conditions and speculation that the U.S. may soon lift its 50% tariff on Brazilian coffee, potentially increasing supply. This bearish sentiment is reinforced by projected increases in Vietnamese robusta exports and production, alongside a USDA forecast for a 2.5% rise in world coffee production and a 4.9% increase in ending stocks for 2025/26. However, underlying support for prices comes from shrinking ICE coffee inventories, with arabica at a 1.5-year low, and persistent concerns over Brazilian drought conditions and a La Niña forecast threatening the 2026/27 crop, compounded by a recent cut to Brazil's 2025 arabica crop estimate by Conab.

Analysis

Coffee futures are currently experiencing downward pressure, with December arabica (KCZ25) down -0.59% and January robusta (RMF26) down -0.15%, though prices remain above recent 2-week lows. This decline is primarily driven by forecasts of rain in key Brazilian coffee-growing regions, which could alleviate prior dry conditions, and speculation regarding a potential lifting of the 50% US tariff on Brazilian coffee following recent high-level discussions between Presidents Lula and Trump. The removal of tariffs would likely increase Brazilian coffee supply to the US market, currently impacted by US buyers voiding contracts.

Despite immediate bearish factors, significant underlying support for coffee prices persists due to critically low inventories and ongoing weather concerns. ICE-monitored arabica inventories have fallen to a 1.5-year low of 446,475 bags, while robusta inventories are at a 3.25-month low, partly exacerbated by the existing US tariffs on Brazilian imports. Furthermore, persistent drought conditions in Brazil, particularly in Minas Gerais, and a 71% likelihood of a La Niña weather system from October to December, threaten the 2026/27 coffee crop, a concern amplified by Conab's recent 4.9% cut to Brazil's 2025 arabica crop estimate.

The longer-term supply outlook presents a mixed picture, with robusta production projected to increase significantly. Vietnam's Jan-Sep 2025 coffee exports rose 10.9% year-over-year, and its 2025/26 production is forecasted to climb 6% to a 4-year high of 1.76 MMT. The USDA FAS projects a 2.5% year-over-year increase in world coffee production for 2025/26 to a record 178.68 million bags, with robusta production up 7.9%, and a 4.9% increase in ending stocks, suggesting potential for increased global supply despite the immediate inventory drawdowns.

Key Decisions for Investors

• Investors should closely monitor developments regarding the potential lifting of US tariffs on Brazilian coffee, as this could significantly alter supply dynamics and price trajectories for arabica.
• Maintain vigilance on Brazilian weather patterns, particularly the impact of forecasted rains on current dry conditions and the evolving La Niña probability, which will be critical for 2026/27 crop yield projections.
• Assess the divergence between robusta and arabica market fundamentals, considering the projected increase in Vietnamese robusta supply against the backdrop of critically low ICE arabica inventories and Brazilian crop concerns.