Coffee Prices Fall on Brazil Rains and Brazilian Real Weakness

Coffee prices recently declined, with arabica reaching a one-week low, primarily due to forecasts for beneficial rains in Brazil's coffee-growing regions and a weaker Brazilian real encouraging exports, alongside increased robusta supplies from Vietnam. However, significant underlying support persists from critically low ICE arabica inventories, exacerbated by US tariffs on Brazilian imports, and revised downward Brazilian crop estimates, with Volcafe projecting a widening global arabica deficit for 2025/26.

Analysis

Coffee prices, specifically December arabica (KCZ25) and November robusta (RMX25), declined on Friday, with arabica hitting a one-week low, primarily driven by forecasts for significant rainfall (up to 30mm) in Brazil's Minas Gerais region, which is expected to aid coffee flowering. Further downward pressure stemmed from the Brazilian real's (^USDBRL) tumble to a two-month low, incentivizing increased export sales from Brazil, alongside a reported 10.9% year-over-year increase in Vietnam's Jan-Sep 2025 coffee exports. Global coffee exports for Oct-Aug also rose +0.2% y/y, indicating adequate supplies.

Despite recent price weakness, underlying bullish factors persist, notably the sharp drawdown in ICE coffee inventories. Arabica inventories reached a 1.5-year low of 509,383 bags, while robusta inventories fell to a 2.5-month low, exacerbated by 50% US tariffs on Brazilian imports which are tightening US supplies as American buyers void contracts. This tariff situation creates a unique supply dynamic for a market where Brazil supplies about a third of America's unroasted coffee.

Longer-term supply concerns are also evident, with Conab cutting Brazil's 2025 arabica crop estimate by 4.9% to 35.2 million bags and overall 2025 production by 0.9%. Furthermore, the NOAA increased the likelihood of a La Niña system to 71%, potentially bringing dry weather to Brazil and harming the 2026/27 crop, while Volcafe projects a widening global arabica deficit of 8.5 million bags for 2025/26, marking the fifth consecutive year of deficits, contrasting with the USDA FAS's forecast for a 2.5% increase in overall world coffee production.

Key Decisions for Investors

• Monitor weather developments in Brazil, especially La Niña's potential impact on the 2026/27 arabica crop, and robusta supply trends from Vietnam, which show a projected 6% y/y increase in 2025/26 production.
• Assess the ongoing influence of the depreciating Brazilian Real on export volumes and the sustained effect of US tariffs on ICE inventory levels and US supply dynamics.
• Consider the potential for a rebound in arabica prices given the projected widening global deficit for 2025/26, despite current short-term bearish pressures from increased overall world production forecasts.