Coffee Prices Sink on the Outlook for Ample Supplies

Coffee futures plummeted Wednesday, with arabica and robusta reaching multi-month lows, driven by an improved supply outlook from key producers. Brazil's ongoing coffee harvest, currently 35% complete, is weighing on prices, while the USDA forecasts increased coffee production in both Brazil and Vietnam for the 2025/26 season; however, robusta inventories are declining, while arabica inventories remain elevated.

Analysis

Coffee futures registered sharp declines, with July arabica (KCN25) falling 3.26% to a 5-month nadir and July robusta (RMN25) plunging 6.92% to a 1-year low, primarily attributed to an improved supply outlook. The ongoing Brazilian coffee harvest, which Safras & Mercado reported as 35% complete for the 2025/26 crop by June 11 (aligning with the 5-year average), is exerting downward pressure; this is despite localized rains slowing arabica picking (26% complete vs. robusta's 49%). Further bearish sentiment stems from USDA FAS forecasts anticipating a 0.5% year-over-year increase in Brazil's 2025/26 coffee production to 65 million bags and a 6.9% rise in Vietnam's 2025/26 output to 31 million bags. Recent rainfall in Brazil's Minas Gerais, recorded at 131% of the historical average for the week ending June 14, has also mitigated earlier dryness concerns. Conversely, several factors provide underlying support or suggest tighter conditions: ICE-monitored robusta inventories dropped to a 1-month low of 5,150 lots, and Brazil's May green coffee exports decreased by a significant 36% year-over-year. Vietnam's 2023/24 crop suffered a 20% reduction due to drought, and its 2024 exports have declined 17.1% year-over-year. While ICE-monitored arabica inventories hit a 4.5-month high in late May (currently 861,143 bags), the USDA FAS projects global 2024/25 ending stocks will decline by 6.6% to a 25-year low. Adding to this longer-term tightness, Volcafe forecasts a widening global arabica deficit of -8.5 million bags for 2025/26, the fifth consecutive deficit year. The market is thus navigating immediate harvest pressure against conflicting medium-to-long-term supply signals and divergent inventory situations between arabica and robusta.

Key Decisions for Investors

• Investors should closely monitor the progression of Brazil's current 2025/26 harvest and evolving weather conditions, as these factors are currently the dominant influence on prices, particularly for arabica.
• The contrasting trajectories of robusta inventories (declining to a 1-month low) versus arabica inventories (near 4.5-month highs) suggest potential for spread trading opportunities or a bifurcated strategy for the two bean types.
• Despite current bearish pressures from the harvest, the USDA's forecast for 25-year low global ending stocks for 2024/25 and Volcafe's projection of a fifth consecutive arabica deficit in 2025/26 warrant attention for potential medium-term price support.