Coffee Prices Pressured by Brazil's Coffee Harvest

Coffee futures declined Wednesday, with robusta hitting a one-week low, pressured by ongoing harvest progress in Brazil; Cooxupe reported its members' harvest 13.7% complete, slightly ahead of last year, while Safras & Mercado indicated Brazil's 2025/26 harvest is 28% complete, marginally above the five-year average. Recent rainfall in key growing regions has further eased concerns about dryness, adding to bearish sentiment stemming from forecasts of increased coffee production in Brazil and Vietnam, as well as rising ICE coffee inventories.

Analysis

Coffee prices, specifically July arabica (KCN25) which closed down 1.24% and July ICE robusta (RMN25) down 0.39% to a 1-week low, are currently pressured by Brazil's advancing coffee harvest and favorable weather. Cooxupe reported Brazil's harvest at 13.7% complete as of early June, slightly ahead of last year, while Safras & Mercado indicated the broader 2025/26 harvest is 28% complete, marginally above the five-year average. Significant rainfall in Brazil's Minas Gerais region, recorded at 207% of the historical average for the week ending June 7, has alleviated dryness concerns, contributing to bearish sentiment. This outlook is reinforced by expectations of increased global supply; the USDA's Foreign Agricultural Service (FAS) forecasts Brazil's 2025/26 coffee production to rise by 0.5% year-over-year (y/y) to 65 million bags and projects Vietnam's 2025/26 output will increase by 6.9% y/y to 31 million bags. Further pressure stems from rising ICE-monitored coffee inventories, with robusta stocks reaching an 8-3/4 month high and arabica stocks a 4-1/4 month high in late May. Demand-side risks have also emerged, as major importers including Starbucks (SBUX), Hershey (HSY), and Mondelez International (MDLZ) cautioned that potential US tariffs could elevate prices and dampen sales volumes. Conversely, some bullish elements temper the bearish outlook: Brazil's May green coffee exports fell sharply by 36% y/y according to Cecafe, and Vietnam experienced a significant 20% drop in its 2023/24 crop output due to drought, with its 2024 exports also declining. While the USDA FAS projects a 4.0% increase in world coffee production for 2024/25, it simultaneously forecasts global ending stocks for that period to fall by 6.6% to a 25-year low. Adding to this complex picture, Volcafe projects a substantial global arabica deficit of -8.5 million bags for 2025/26, indicating a potential tension between current supply relief from the Brazilian harvest and underlying longer-term market tightness.

Key Decisions for Investors

• Investors should closely monitor ongoing Brazilian harvest progress reports and weather patterns in key growing regions, as these are currently the primary drivers exerting downward pressure on coffee prices.
• Evaluate the conflicting supply signals, such as increased short-term production forecasts and rising ICE inventories against reports of lower recent Brazilian exports and divergent long-term deficit projections from agencies like Volcafe, which could introduce price volatility.
• Assess the potential impact of US tariff policies on demand from major coffee consuming companies like Starbucks (SBUX), Hershey (HSY), and Mondelez (MDLZ), considering both the direct commodity price implications and the secondary effects on these companies' equities and sales volumes.