Coffee Prices Erase Early Gains as the Brazilian Real Declines

Coffee prices, including December arabica and January robusta, declined on Tuesday from 1.5-week highs, primarily due to long liquidation, a weaker Brazilian real encouraging exports, and speculation that the US may lift its 50% tariff on Brazilian coffee. Robusta prices were further pressured by increased Vietnamese supplies, with exports up 10.9% year-over-year and 2025/26 production projected to climb 6%. Although concerns over adverse weather in Brazil and Vietnam, alongside shrinking ICE inventories, offered some price support, these were ultimately overshadowed by the bearish factors and USDA FAS forecasts indicating a 2.5% increase in global coffee production for 2025/26 and higher ending stocks.

Analysis

Coffee futures, specifically December arabica and January robusta, closed lower on Tuesday, retreating from 1.5-week highs. This decline was primarily driven by long liquidation and a weakening Brazilian real, which fell to a 1.5-week low, incentivizing increased export sales from Brazil. Additionally, arabica prices faced pressure from speculation regarding a potential lifting of the 50% US tariff on Brazilian coffee imports, a policy that previously tightened US supplies and contributed to ICE inventory drawdowns.

Further bearish sentiment stemmed from robusta supply increases, with Vietnam's Jan-Sep 2025 coffee exports rising 10.9% year-over-year to 1.230 MMT. Vietnam's 2025/26 production is projected to climb 6% to a four-year high of 1.76 MMT, with Vicofa anticipating a 10% increase under favorable weather. Global coffee exports for the current marketing year also rose 0.2% year-over-year to 127.92 million bags, as reported by the ICO, indicating adequate overall supply.

Despite these bearish signals, initial price rallies were observed due to concerns over adverse weather, including a typhoon threat to Vietnamese robusta crops and significantly below-average rainfall in Brazil's Minas Gerais. Shrinking ICE-monitored inventories, with arabica at a 1.75-year low and robusta at a 3.5-month low, also provided support. However, these were largely overshadowed by the USDA FAS forecast projecting a 2.5% increase in world coffee production for 2025/26 to a record 178.68 million bags, alongside a 4.9% rise in ending stocks.

Key Decisions for Investors

• Monitor developments regarding the US-Brazil tariff situation, as a resolution could significantly impact arabica prices and trade flows.
• Evaluate robusta positions given projected increases in Vietnamese supply and global export figures, which suggest continued price pressure.
• Observe weather patterns in key growing regions like Brazil and Vietnam, as adverse conditions could still provide short-term price support despite broader bearish supply forecasts.
• Consider the implications of a weakening Brazilian real on export competitiveness and its potential to further depress coffee futures.