Coffee Prices Continue to See Pressure from Brazil's Coffee Harvest

Coffee prices are consolidating near recent lows, pressured by an advancing Brazilian harvest and USDA forecasts for record global production and increased ending stocks in 2025/26, particularly from Brazil and Vietnam. Despite this, the market finds some support from tightening robusta inventories, reduced current exports from Brazil and Vietnam, and Volcafe's projection of a widening arabica deficit for 2025/26, suggesting a nuanced supply outlook amidst mixed fundamentals.

Analysis

Coffee prices are consolidating at multi-month lows, with arabica hitting a contract low and robusta a 1.25-year low, primarily due to pressure from the advancing Brazilian harvest. Progress is reported at 31-35% complete, roughly in line with the 5-year average, and forecasts for dry weather are expected to accelerate harvesting activities. The primary bearish headwind is the USDA's latest forecast, which projects record global coffee production for 2025/26 at 178.68 million bags (+2.5% y/y) and a 4.9% increase in ending stocks, fueled by higher output from Brazil and a 6.9% rise in Vietnam's production. This supply-heavy outlook is further compounded by high ICE-monitored arabica inventories, which recently hit a 4.75-month high. However, this bearish sentiment is partially offset by several supportive factors. Robusta prices find support from tightening ICE-monitored inventories, which fell to a 6-week low. Furthermore, current export data from major producers is weak, with Brazil's May exports declining 36% y/y and Vietnam's 2024 exports down 17.1% y/y. Critically, a significant forecast divergence exists, as Volcafe projects a widening arabica deficit of -8.5 million bags for 2025/26, marking the fifth consecutive deficit year and directly contradicting the USDA's more bearish outlook.

Key Decisions for Investors

• Given the diverging fundamentals between arabica and robusta, where arabica faces pressure from high inventories and a strong harvest while robusta sees tightening stocks, investors could consider relative value trades, such as long robusta versus short arabica futures.
• The conflicting long-term supply forecasts from the USDA (surplus) and Volcafe (deficit) create significant market uncertainty; traders should closely monitor incoming Brazilian harvest yield data and global inventory reports to validate which outlook is materializing.
• With prices consolidating near multi-month lows under the weight of the Brazilian harvest and a bearish USDA forecast, establishing new long positions may be premature until a clear fundamental catalyst emerges to challenge the current supply narrative.