NY Coffee Prices Continue to be Undercut by Favorable Weather Forecasts

Coffee prices closed mixed, with arabica down and robusta up, reflecting a complex interplay of supply and demand factors. Bullish sentiment is driven by critically low ICE arabica and robusta inventories, a 50% US tariff on Brazilian imports tightening US supplies, and persistent drought concerns in Brazil threatening the 2026/27 crop, reinforced by a 71% La Niña probability and Conab's reduced 2025 arabica forecast. Conversely, bearish pressures stem from recent favorable weather forecasts in Brazil and Vietnam, along with USDA FAS projections for increased global coffee production in 2025/26, particularly from Vietnam, and rising global export figures. The potential removal of US tariffs on Brazilian goods remains a key uncertainty for future price direction.

Analysis

Coffee prices closed mixed on Friday, with arabica down 1.74% and robusta up 0.37%, following sharp declines on Thursday. These declines were driven by improved weather forecasts for Brazil's coffee-growing regions and reduced heavy rain risk in Vietnam, highlighting market sensitivity to short-term supply outlooks.

Despite recent price pullbacks, underlying bullish sentiment persists due to critically low ICE coffee inventories, with arabica at a 1.5-year low of 447,773 bags and robusta at a 3-month low of 6,130 lots. The 50% US tariffs on Brazilian imports are exacerbating US supply tightness, as American buyers void new contracts, while long-term supply concerns for Brazil's 2026/27 crop are underpinned by an intense drought in Minas Gerais (70% of average rainfall) and NOAA's 71% likelihood of a La Niña system.

However, significant bearish pressures are emerging from Vietnam, with Jan-Sep 2025 coffee exports up 10.9% year-over-year and 2025/26 production projected to climb 6% to a 4-year high of 1.76 MMT. The USDA FAS forecasts a record global coffee production in 2025/26, increasing 2.5% year-over-year, alongside a potential removal of the 50% US tariff on Brazilian goods, which would be a bearish catalyst.

Conab's recent cut to Brazil's 2025 arabica crop estimate by 4.9% to 35.2 million bags provides some support, but is partially offset by the broader global supply increase projected by FAS. The market is navigating a complex interplay of immediate inventory tightness, long-term weather risks, and increasing robusta supply.

Key Decisions for Investors

• Monitor the progress of US-Brazil trade talks regarding the 50% tariff, as its removal would likely exert significant downward pressure on coffee prices.
• Closely track weather developments in Brazil, particularly the impact of the 71% likely La Niña on the 2026/27 arabica crop, given current drought conditions in key regions like Minas Gerais.
• Evaluate the robusta market for potential oversupply, considering Vietnam's projected 6% increase in 2025/26 production and rising export figures, which could cap price appreciation.
• Assess the divergence between current low ICE inventories, which provide short-term support, and the USDA FAS forecast for record global production in 2025/26, which suggests longer-term supply normalization.