Coffee Prices Decline Sharply Amid Inventory Surge and Production Forecasts

On Thursday, July arabica coffee (KNC25) closed down -9.55 (-2.58%), while July ICE robusta coffee (RMN25) fell -116 (-2.37%). Coffee prices dropped significantly, with arabica hitting a five-week low and robusta reaching a six-week low. Increased inventory levels at ICE are pressuring these prices.

ICE-monitored robusta coffee inventories climbed to an eight-month high of 5,425 lots, and arabica coffee stocks rose to a three-and-a-half-month high of 883,197 bags.

Production Forecasts Signal Higher Coffee Supplies

Coffee prices have faced downward pressure for the past three weeks due to forecasts for increased production. The USDA’s Foreign Agriculture Service (FAS) recently projected that Brazil’s coffee output for 2025/26 will rise by 0.5% year-over-year to 65 million bags. Meanwhile, Vietnam is expected to increase its coffee production by 6.9% year-over-year to 31 million bags. Both countries are key players, with Brazil being the world’s largest producer of arabica coffee and Vietnam leading in robusta.

Additionally, on May 9, the USDA forecasted that Honduras, Central America’s largest coffee producer, would see a production increase of 5.1% year-over-year to 5.8 million bags. Similarly, consulting firm Safras & Mercado adjusted its estimate for Brazil’s coffee production for 2025/26 upward to 65.51 million bags from a previous 62.45 million bags. Conab, Brazil’s crop forecasting agency, also raised its estimate for Brazil’s 2025 coffee production to 55.7 million bags from an earlier estimate of 51.81 million bags.

Concerns Over Demand Weigh Heavily

Demand-related issues are contributing to the bearish outlook for coffee prices. Major global commodity importers, such as Starbucks, Hershey, and Mondelez International, have indicated that the U.S.’s baseline 10% tariff on imports may elevate prices, thereby impacting sales volumes.

Weather Impact and Exports

While there are signs of increased coffee supplies, concerns about weather conditions in Brazil could limit further price declines. Somar Meteorologia reported that Brazil’s leading arabica-growing region, Minas Gerais, received only 2.5 mm of rain in the week ending May 17, which is only 12% of the historical average.

Furthermore, Brazil’s April green coffee exports dropped 28% year-over-year to 3.05 million bags, while exports from January to April fell 15.5% compared to the previous year, totaling 13.186 million bags. Reduced robusta production in Vietnam further supports prices, as the country faces a 20% decrease in production for the 2023/24 crop year, resulting in an output of 1.472 MMT, the lowest in four years. Vietnam’s 2024 coffee exports are also down 17.1% year-over-year to 1.35 MMT.

Long-Term Predictions

In contrast to Vietnam’s struggles, Rabobank forecasts that Brazil’s robusta coffee production for 2025/26 will increase by 7.3% year-over-year, potentially reaching a record 24.7 million bags. However, the USDA’s upcoming biannual report on December 18 provided mixed signals for coffee prices. The FAS projects a world coffee production increase of 4.0% year-over-year for 2024/25, predicting an arabica production rise of 1.5% to 97.845 million bags and a robusta increase of 7.5% to 77.01 million bags. Additionally, the FAS anticipates a reduction in 2024/25 ending stocks, expected to fall by 6.6% to a 25-year low of 20.867 million bags.

For the 2025/26 marketing year, Volcafe on December 17 cut its Brazil arabica coffee production estimate to 34.4 million bags, significantly lower than earlier estimates due to ongoing drought conditions. Volcafe warns of a projected global arabica deficit of 8.5 million bags for 2025/26, marking the fifth consecutive year of deficits.

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

The views expressed here reflect those of the author and may not necessarily align with Nasdaq, Inc.