Coffee Prices Drop Sharply Amid Supply Increases and Tariff Concerns

July arabica coffee (KCN25) is down -14.40 (-3.71%), while July ICE robusta coffee (RMN25) has decreased -161 (-3.08%).

Market Overview: Declining Coffee Prices

Today’s coffee prices are significantly lower. Arabica coffee has fallen to a 2-1/2 week low, and robusta coffee has declined to a 1-month low. This drop comes as the dollar index (DXY00) reaches a 1-month high, putting downward pressure on coffee prices. Additionally, the USDA’s recent forecast indicates a larger global coffee supply, predicting a 5.1% year-over-year increase in Honduras’ coffee production for 2025/26 to 5.8 million bags. Brazil’s coffee production estimates have also risen, with Safras & Mercado increasing its 2025/26 estimate to 65.51 million bags, up from 62.45 million bags

Inventory Levels Impacting Prices

The coffee inventory landscape is improving, which could further suppress prices. ICE-monitored robusta coffee inventories have reached a 3-1/3 month high of 4,507 lots. Similarly, ICE-monitored arabica coffee inventories hit a 2-3/4 month high last Wednesday, totaling 844,473 bags.

Demand Concerns from Major Players

Concerns about demand are also contributing to the bearish trend for coffee prices. Major commodity importers, including Starbucks, Hershey, and Mondelez International, have announced that the US’s baseline 10% tariff on imports will likely increase prices and pressure sales volumes.

Brazil’s Coffee Crop Under Scrutiny

Despite the overall market decline, some support for coffee prices exists due to concerns about a smaller Brazilian crop. Rabobank recently estimated that Brazil’s 2025/26 arabica coffee crop might decrease by 13.6% year-over-year to 38.1 million bags, attributing this to dry weather affecting key growing areas. In March, green coffee exports from Brazil dropped 26% year-over-year to 2.95 million bags.

Weather Conditions Affecting Production

Recent rainfall reports add to the uncertainty. Somar Meteorologia indicated that Brazil’s key growing region, Minas Gerais, received only 0.8 mm of rain last week, which is just 16% of the historical average. This lack of precipitation could adversely affect the crop’s development.

Robusta Coffee Production Declines

Robusta coffee also shows signs of support as Vietnam’s National Statistics Office reported a 9.8% year-over-year decline in coffee exports for January-April 2025, reaching 663,000 MT. Factors such as drought have led to a 20% drop in Vietnam’s coffee production for the 2023/24 crop year, marking the smallest crop in four years. Additionally, Vietnam’s coffee exports fell 17.1% year-over-year to 1.35 MMT. In March, the Vietnam Coffee and Cocoa Association revised its production estimate for 2024/25 down to 26.5 million bags from an earlier estimate of 28 million bags. Conversely, Rabobank projects that Brazil’s 2025/26 robusta coffee crop will increase by 7.3% year-over-year to a record 24.7 million bags.

Global Coffee Exports: A Mixed Bag

Although there are some positive signals, news of increased global coffee exports remains bearish. Conab recently announced that Brazil’s 2024 coffee exports rose by 28.8% year-over-year to a record level of 50.5 million bags. However, the International Coffee Organization (ICO) reported a 2.1% year-over-year decline in global coffee exports for the October-March period, totaling 67.73 million bags.

USDA Report: Future Projections

The USDA’s biannual report published on December 18 presented a mixed outlook for coffee prices. The USDA’s Foreign Agriculture Service (FAS) expects a 4.0% year-over-year increase in world coffee production for 2024/25, reaching 174.855 million bags. Arabica production is expected to grow by 1.5% to 97.845 million bags, while robusta production is forecast to rise by 7.5% to 77.01 million bags. Ending stocks for 2024/25 are projected to decrease by 6.6% to a 25-year low of 20.867 million bags.

Long-Term Outlook and Deficits

Looking ahead to the 2025/26 marketing year, Volcafe has lowered its Brazilian arabica coffee production estimate to 34.4 million bags, concerning investors. This estimate reflects an 11 million bag drop from previous projections following crop reviews that highlighted the severity of ongoing drought conditions. Volcafe anticipates a global 2025/26 arabica coffee deficit of 8.5 million bags, surpassing the 5.5 million bag deficit predicted for 2024/25, marking the fifth consecutive year of deficits.

On the date of publication, Rich Asplund did not hold positions in any of the securities mentioned in this article. All information is for informational purposes. For more details, please view the Barchart Disclosure Policy here.

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