Coffee Prices Pressured by Potential US Tariff Cuts

Coffee prices declined for a second consecutive day, with robusta hitting a two-week low, primarily driven by expectations of increased global supply and potential US tariff reductions. StoneX forecasts Brazil's 2026/27 coffee production to surge by 29% year-over-year, while Vietnam's 2025/26 output is projected to reach a four-year high amid rising exports. These bearish supply-side factors, coupled with recent favorable rainfall in Brazil, are currently outweighing concerns over shrinking ICE inventories due to US tariffs on Brazilian imports and the potential for La Niña to impact future crops.

Analysis

Coffee prices, including December arabica (KCZ25) and January robusta (RMF26), closed lower for a second consecutive day, with robusta hitting a two-week low. This downturn is primarily driven by expectations of potential US tariff reductions on non-US grown crops, as hinted by Treasury Secretary Bessent, alongside significant supply-side forecasts.

StoneX projects a substantial 29% year-over-year increase in Brazil's 2026/27 coffee production to 70.7 million bags, including 47.2 million bags of arabica. Concurrently, Vietnam's Jan-Oct 2025 coffee exports rose 13.4% year-over-year, and its 2025/26 production is forecasted to climb 6% to a four-year high of 1.76 MMT, contributing to bearish sentiment. Recent favorable rainfall in Brazil's Minas Gerais region further eased immediate dryness concerns.

Counteracting these pressures, ICE-monitored arabica inventories fell to a 1.75-year low of 403,430 bags, and robusta inventories to a 3.75-month low of 5,760 lots, partly due to 50% US tariffs on Brazilian imports tightening US supplies. Global coffee exports also saw a 0.3% year-over-year drop for the current marketing year.

The NOAA's increased likelihood of a La Niña weather system (71%) for Oct-Dec poses a risk to Brazil's 2026/27 crop, suggesting potential future supply constraints. This creates a complex market dynamic, balancing near-term oversupply expectations from key producers against longer-term supply chain and weather-related uncertainties.

Key Decisions for Investors

• Monitor developments regarding potential US tariff adjustments, as these could significantly alter import costs and global supply dynamics for coffee.
• Evaluate the long-term supply outlook by balancing projected production increases from Brazil and Vietnam against the potential impact of La Niña on future crops and shrinking ICE inventories.
• Consider hedging strategies or adjusting exposure based on the evolving balance between near-term oversupply expectations and longer-term supply constraints.