Coffee Prices Sharply Lower as Global Coffee Supply Outlook Improves

Coffee prices declined sharply on Wednesday, with arabica hitting a 7-week low and robusta a 6-1/2 month low, driven by forecasts of increased coffee production in Brazil and Vietnam for the 2025/26 season from the USDA and other agencies. Rising ICE coffee inventories further pressured prices, despite concerns about adverse weather in Brazil and reduced exports, as well as decreased robusta production in Vietnam due to drought.

Analysis

Coffee prices experienced a significant downturn, with July arabica (KCN25) declining -2.70% to a 7-week low and July ICE robusta (RMN25) falling -2.21% to a 6-1/2 month low, primarily driven by an improved outlook for global coffee production and rising inventories. The USDA's Foreign Agricultural Service (FAS) projects Brazil's 2025/26 coffee output to increase by 0.5% y/y to 65 million bags and Vietnam's 2025/26 output to rise by 6.9% y/y to 31 million bags, with similar upward revisions from Safras & Mercado and Conab for Brazilian production. Concurrently, ICE-monitored robusta inventories reached an 8-month high (5,438 lots) and arabica inventories hit a 3-3/4 month high (892,468 bags), adding to bearish pressure. However, conflicting signals temper this outlook: Somar Meteorologia reported significantly below-average rainfall in Brazil's key Minas Gerais region (0.3 mm, 4% of historical average for the week ended May 24), raising crop yield concerns. Furthermore, Brazil's April green coffee exports dropped -28% y/y, and Vietnam's 2023/24 robusta production fell -20% due to drought, with its 2024 exports also declining. While the USDA FAS December report indicated a 4.0% rise in global 2024/25 production, it also forecasted a -6.6% drop in ending stocks to a 25-year low, and Volcafe projects a widening global arabica deficit of -8.5 million bags for 2025/26. Demand-side uncertainties, including potential US import tariffs affecting major buyers like Starbucks (SBUX), Hershey (HSY), and Mondelez (MDLZ), further contribute to a complex market environment, reflected in the mixed sentiment and uncertain tone signals.

Key Decisions for Investors

• Investors should closely monitor Brazilian weather reports and Vietnamese production/export data, as these are pivotal conflicting drivers influencing the recent sharp coffee price declines and future volatility.
• Given the fresh multi-week/month lows and rising inventories driven by optimistic supply forecasts, further price pressure is possible; however, the market remains highly sensitive to adverse weather or actual supply disruptions, which could rapidly reverse trends.
• Evaluate the impact of global demand factors, including potential trade tariffs which show negative sentiment impact on key importers, against the backdrop of projected multi-year low global ending stocks which could offer longer-term price support despite near-term production optimism.