Arabica Coffee Prices Rebound on Dryness in Brazil

Coffee prices are mixed, with arabica rising from an 8-week low due to concerns about dry weather in Brazil's coffee-growing region, while robusta fell to a 6-3/4 month low amid expectations of increased global coffee production, particularly from Brazil and Vietnam. Despite the overall bearish sentiment driven by higher production forecasts and rising ICE coffee inventories, reduced coffee exports from Brazil and concerns about robusta production in Vietnam are providing some price support. Conflicting forecasts regarding Brazil's robusta crop and global arabica deficits add further uncertainty to the coffee market outlook.

Analysis

Coffee markets are currently exhibiting divergent trends: July arabica (KCN25) futures rose +3.10 (+0.91%), recovering from an 8-week low, while July ICE robusta (RMN25) futures declined -38 (-0.84%), reaching a 6-3/4 month low. The overarching pressure on coffee prices stems from expectations of increased global production and ample supplies. The USDA's Foreign Agricultural Service (FAS) projects Brazil's 2025/26 coffee production to rise by 0.5% y/y to 65 million bags and Vietnam's 2025/26 output to increase by 6.9% y/y to 31 million bags. Supporting this outlook, Safras & Mercado and Conab also revised their Brazil production estimates upward. ICE-monitored robusta inventories hit an 8-1/2 month high, and arabica inventories reached a 4-month high, further weighing on prices. However, arabica found support from concerns over dry weather in Brazil's Minas Gerais region, which received no rain in the week ended May 31. Conflicting signals persist: Brazil's April green coffee exports fell 28% y/y, and Jan-Apr exports dropped 15.5% y/y, which is bullish. Vietnam's 2023/24 robusta production fell 20% due to drought, with 2024 exports down 17.1% and Jan-Apr 2025 exports projected to be down 9.8%. Conversely, Rabobank forecasts Brazil's 2025/26 robusta crop to climb 7.3% y/y to a record. The USDA's FAS December report indicated a 4.0% rise in 2024/25 world coffee production but also projected a 6.6% fall in ending stocks to a 25-year low. Volcafe anticipates a global 2025/26 arabica deficit of -8.5 million bags, the fifth consecutive year of deficits. Demand concerns also loom, with major importers like Starbucks, Hershey, and Mondelez citing potential US tariffs as a factor that could raise prices and pressure sales volumes.

Key Decisions for Investors

• Investors should anticipate continued volatility in coffee futures, given the conflicting supply signals between increased production forecasts for Brazil and Vietnam versus current weather concerns in Brazil and reduced Vietnamese robusta output.
• Consider the divergence between arabica, which may see short-term support from Brazilian weather issues and projected deficits, and robusta, which faces pressure from higher inventory levels and strong Brazilian robusta crop forecasts.