Coffee Prices Rebound Mildly Higher After Posting New Lows

Coffee futures rebounded after hitting multi-week lows, driven by pre-weekend short covering amid ongoing Brazilian harvest reports; Cooxupe indicated harvest progress slightly ahead of last year, while Safras & Mercado noted Brazil's 2025/26 harvest is 35% complete. Overall, coffee prices remain pressured by expectations of increased production, particularly from Brazil and Vietnam, despite concerns about reduced robusta output due to drought in Vietnam and smaller Brazilian exports. Conflicting factors such as recent rainfall in Brazil, rising arabica inventories, and varying production forecasts contribute to market uncertainty.

Analysis

Coffee prices recently demonstrated a partial recovery, with July arabica futures (KCN25) rising +0.43% from a 2-week low and July robusta (RMN25) gaining +0.77% from a 7-month low, largely attributed to pre-weekend short covering. Despite this rebound, the market remains generally weak due to Brazil's ongoing coffee harvest. Cooxupe, Brazil's largest coffee cooperative, reported its members' harvest at 13.7% complete, slightly ahead of last year's 13.6%, while Safras & Mercado indicated the broader Brazilian 2025/26 harvest was 35% complete by June 11, marginally behind last year's 37% but consistent with the 5-year average. Heavy rains have reportedly slowed Brazil's arabica harvest (26% complete) relative to robusta (49% complete). The market is currently navigating a complex set of conflicting signals: the USDA's Foreign Agricultural Service (FAS) forecasts a 0.5% year-over-year (y/y) increase in Brazil's 2025/26 coffee production to 65 million bags and a 6.9% y/y rise in Vietnam's 2025/26 output to 31 million bags. Bearish pressure also stems from recent above-normal rainfall in Brazil's Minas Gerais region (207% of historical average for the week ended June 7) and a rise in ICE-monitored arabica inventories to a 4-1/4 month high of 892,468 bags on May 27. Conversely, supportive factors include a significant 36% y/y decrease in Brazil's May green coffee exports to 2.8 million bags, a 20% drop in Vietnam's 2023/24 robusta production to a 4-year low of 1.472 MMT due to drought, and a 17.1% y/y fall in Vietnam's 2024 coffee exports. Additionally, ICE-monitored robusta inventories declined to a 3-week low of 5,184 lots, and the Vietnam Coffee and Cocoa Association has lowered its 2024/25 production estimate. Longer-term perspectives are also mixed, with the USDA's December report projecting a 4.0% y/y increase in 2024/25 global production alongside a forecast drop in ending stocks to a 25-year low, while Volcafe anticipates a widening global arabica deficit of -8.5 million bags for 2025/26, marking the fifth consecutive year of deficits.

Key Decisions for Investors

• Investors should monitor coffee futures for sustained short-covering momentum following the recent rebound, while remaining aware of the prevailing bearish pressure from the ongoing Brazilian harvest.
• Consider evaluating potential spread opportunities or adopting differentiated strategies between robusta, which is currently supported by lower ICE inventories and Vietnamese supply concerns, and arabica, which faces higher inventories but potential Brazilian harvest delays due to rain.
• Closely scrutinize upcoming Brazilian harvest progress reports, export figures from both Brazil and Vietnam, and evolving weather patterns, as these factors will be crucial in resolving the market uncertainty created by conflicting production forecasts from entities like the USDA and the Vietnam Coffee and Cocoa Association.
• Factor in the long-term bullish arabica deficit projected by Volcafe against the USDA's outlook for increased global supply when assessing medium to long-term positions, maintaining a cautious stance until clearer fundamental trends emerge.