Coffee Prices Slip on the Outlook for Larger Global Supplies

Coffee prices are declining due to forecasts of increased global supplies from Brazil and Vietnam, as highlighted by the USDA's Foreign Agriculture Service. Brazil's 2025/26 coffee production is expected to rise 0.5% YOY to 65 million bags, while Vietnam's output is projected to increase 6.9% YOY to 31 million bags. Despite concerns about adverse weather in Brazil potentially impacting crop size and reduced coffee exports from Brazil, rising ICE coffee inventories are further contributing to the downward pressure on prices.

Analysis

Coffee prices are currently under pressure, evidenced by July arabica (KCN25) declining 1.01% and July ICE robusta (RMN25) falling 1.15%, primarily due to expectations of increased global supplies. The USDA's Foreign Agriculture Service (FAS) projects a +0.5% year-over-year rise in Brazil's 2025/26 coffee production to 65 million bags and a +6.9% y/y increase in Vietnam's 2025/26 output to 31 million bags. These forecasts are corroborated by other agencies like Safras & Mercado and Conab, which also revised their Brazilian production estimates upwards. This bearish sentiment is further supported by rising ICE-monitored coffee inventories, with robusta stocks at an 8-month high and arabica inventories reaching a 3-1/4 month peak, coupled with Brazil's 2024/25 coffee sales reportedly being 97% complete by May 13, outpacing last year.

However, several significant factors are limiting these price declines and introducing considerable uncertainty. Severe drought conditions in Brazil's key arabica-growing region of Minas Gerais, which received only 12% of historical average rainfall in a recent week, have prompted Volcafe to forecast a substantial global arabica deficit of -8.5 million bags for 2025/26, marking the fifth consecutive year of deficit. Supporting this, Brazil's April green coffee exports fell -28% y/y. Concurrently, Vietnam's 2023/24 robusta production dropped -20% due to drought, with its 2024 coffee exports also declining -17.1% y/y. While the USDA FAS anticipates a 4.0% increase in 2024/25 world production, it also projects global ending stocks to plummet by -6.6% to a 25-year low. Adding another layer of complexity, major importers such as Starbucks, Hershey, and Mondelez International have warned that potential US tariffs could inflate prices and negatively impact sales volumes.

Key Decisions for Investors

• Investors should closely monitor upcoming weather reports from Brazil's coffee regions, as persistent drought conditions could significantly alter arabica supply forecasts and potentially reverse current price trends.
• Given the conflicting supply signals and the USDA's forecast for 25-year low ending stocks, consider strategies that account for potential volatility, particularly assessing the distinct outlooks for arabica, which faces a potential deficit, versus robusta, which has mixed signals from Brazilian output increases and Vietnamese shortfalls.
• Scrutinize export data from Brazil and Vietnam against production forecasts to gauge actual supply availability, and track developments regarding potential US import tariffs which could introduce demand-side headwinds for major corporate buyers and influence overall coffee consumption.