Coffee Prices Dip Amid Market Uncertainty and Supply Concerns

May arabica coffee (KCK25) is down -14.70 (-3.82%) today, while May ICE robusta coffee (RMK25) has decreased by -179 (-3.33%).

Both coffee varieties are experiencing a sell-off today, as arabica and robusta prices hit their lowest levels in two months. The prevailing risk-off sentiment in asset markets is negatively affecting most commodities, including coffee. Additionally, there are rising concerns that potential tariff increases could raise coffee prices for consumers, further dampening demand.

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Today’s losses in coffee prices have accelerated following a notable decline in the Brazilian real (^USDBRL), which fell to a three-week low against the dollar. This currency drop is incentivizing Brazil’s coffee producers to sell their exports.

Over the past month, coffee prices have struggled as worries about drought conditions in Brazil have subsided. A recent report from Somar Meteorologia indicated that Minas Gerais, Brazil’s largest arabica coffee-growing region, received 31.1 mm of rain in the week ending March 29, exceeding the historical average by 114%.

Despite the easing drought worries, supply concerns continue to support coffee prices. On March 13, Cecafe reported that Brazil’s green coffee exports for February fell -12% year-over-year, amounting to 3 million bags. Moreover, Conab, Brazil’s government crop forecasting agency, on January 28, projected a -4.4% decrease year-over-year for the 2025/26 coffee crop, estimating production at a three-year low of 51.81 million bags. This forecast also includes a -1.1% cut from previous estimates for the 2024 Brazil coffee crop, now set at 54.2 million bags, down from 54.8 million bags.

Coffee inventories are tightening, which is another factor supporting prices. ICE-monitored arabica coffee inventories fell to a one-and-a-half month low of 770,476 bags on Monday. Similarly, robusta coffee inventories also dropped to a three-week low today, with 4,308 lots reported.

Support remains in place for coffee prices amid warnings from Cooxupe, Brazil’s largest arabica coffee cooperative, that high temperatures and below-normal rainfall last month could adversely affect yields this year. As the world’s largest producer of arabica coffee, Brazil’s conditions are critical for the global market.

However, on the negative side, Marex Solutions indicated on March 7 that they expect the global coffee surplus for the 2025/26 season to expand to 1.2 million bags, compared to a surplus of +200,000 bags in the 2024/25 season.

The projection for increased global coffee supplies is considered bearish for robusta coffee. Marex Solutions estimates Vietnam’s robusta production for 2025/26 to reach 28.8 million bags, reflecting a +7.9% increase year-over-year, while Brazil’s robusta output is expected to rise to 25 million bags, an increase of +13.6% year-over-year.

The prolonged effects of last year’s dry El Niño weather may cause long-term damage to coffee crops in South and Central America. Since last April, Brazil has experienced below-average rainfall, adversely affecting coffee trees during the crucial flowering stage and diminishing prospects for the 2025/26 arabica crop. According to Cemaden, Brazil is facing its driest conditions since 1981, while Colombia, the world’s second-largest arabica producer, is slowly recovering from El Niño-related drought impacts.

Robusta coffee prices are being supported by reduced production levels. Drought conditions led to a -20% drop in Vietnam’s coffee production for the 2023/24 crop year, with total output at 1.472 million metric tons, marking the smallest crop in four years. Additionally, Vietnam’s General Statistics Office reported that 2024 coffee exports fell -17.1% year-over-year, totaling 1.35 million metric tons. The Vietnam Coffee and Cocoa Association has also revised its 2024/25 production estimate down to 26.5 million bags from an earlier estimate of 28 million bags. Furthermore, Vietnam’s January-to-March coffee exports have decreased by -15.3% year-over-year, reaching 495,780 metric tons.

News regarding increased global coffee exports is acting as a bearish factor for prices. Conab noted on February 4 that Brazil’s 2024 coffee exports rose +28.8% year-over-year, reaching a record 50.5 million bags. However, the ICO reported on February 6 that global coffee exports for December fell -12.4% year-over-year to 10.73 million bags, and combined October to December exports dropped -0.8% year-over-year to 32.25 million bags.

The USDA’s biannual report released on December 18 provided a mixed outlook for coffee prices. According to the USDA’s Foreign Agriculture Service (FAS), global coffee production for 2024/25 is projected to rise +4.0% year-over-year, totaling 174.855 million bags. This encompasses a +1.5% increase in arabica production to 97.845 million bags and a +7.5% increase in robusta production to 77.01 million bags. However, the USDA’s FAS forecasts that ending stocks for 2024/25 will decline by -6.6% to a 25-year low of 20.867 million bags from 22.347 million bags in 2023/24. Separately, the USDA’s FAS projected Brazil’s 2024/25 coffee output at 66.4 million bags, a reduction from the previous estimate of 69.9 million bags, with expected inventories at 1.2 million bags by the end of the season, a -26% year-over-year decrease.

Looking ahead to the 2025/26 marketing year, Volcafe reduced its projection for Brazil’s arabica coffee production to 34.4 million bags, down approximately 11 million bags from its September estimate, following a crop tour that highlighted the severe impact of prolonged drought in Brazil. Volcafe anticipates a global arabica coffee deficit of -8.5 million bags for 2025/26, which is larger than the -5.5 million bag deficit projected for 2024/25 and represents the fifth consecutive year of deficits.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy
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