Coffee Prices Plummet Amid Global Trade Fears and Supply Concerns

May arabica coffee (KCK25) closed down -20.90 (-5.72%) on Monday, while May ICE robusta coffee (RMK25) fell by -316 (-6.18%). Coffee prices declined sharply for a second consecutive session, with arabica reaching a 2-1/4 month low and robusta hitting a 4-month low. This decline is attributed to heightened risk-off sentiment in asset markets, driven by fears of a global trade war, which negatively impacted most commodity prices, including coffee. Concerns are also growing that rising tariffs will hamper coffee demand by increasing consumer prices.

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The drop in coffee prices intensified on Monday following a slump in the Brazilian real (^USDBRL), which fell to a 2-1/4 month low against the dollar. This situation fosters increased export selling from Brazilian coffee producers. Over the past month, coffee prices have faced pressure as dryness concerns in Brazil have started to ease. Notably, Somar Meteorologia indicated that Brazil’s largest arabica coffee-growing region, Minas Gerais, received 39 mm of rain in the week ending April 5, representing 188% of the historical average.

Support for coffee prices is derived from continuing supply fears. On March 13, Cecafe reported that Brazil’s green coffee exports for February fell by 12% year-on-year to 3 million bags. Furthermore, on January 28, Conab, Brazil’s government crop forecasting agency, projected a 4.4% year-on-year decline in the 2025/26 coffee crop, estimating it at a three-year low of 51.81 million bags. Conab also revised its 2024 coffee crop estimate down by 1.1%, from 54.8 million bags to 54.2 million bags.

Moreover, coffee inventories are tightening, contributing to price support. ICE-monitored arabica coffee inventories dropped to a 1-1/2 month low on Monday, falling to 770,476 bags. Similarly, ICE-monitored robusta coffee inventories fell to a three-week low of 4,304 lots.

Brazil’s largest arabica coffee cooperative, Cooxupe, offered additional support for coffee prices by noting that high temperatures and below-average rainfall last month would negatively impact yields this year. As the world’s largest arabica coffee producer, Brazil’s conditions are critical.

Conversely, Marex Solutions projected on March 7 that the global coffee surplus for the 2025/26 season could widen to 1.2 million bags, up from 200,000 bags in the preceding season. This forecast suggests a bearish outlook for coffee markets.

Increased global supplies are expected to negatively affect robusta coffee prices as well. Projections from Marex Solutions show Vietnam’s robusta production for 2025/26 at 28.8 million bags, reflecting a 7.9% year-on-year increase, while Brazil’s robusta production is expected to reach 25 million bags, marking a 13.6% increase.

Additionally, the lingering impact of dry El Nino weather from last year could lead to lasting damage to coffee crops in South and Central America. Rainfall in Brazil has consistently remained below average since last April, harming coffee trees during the crucial flowering stage and limiting prospects for Brazil’s 2025/26 arabica coffee crop. According to Cemaden, Brazil is experiencing its driest weather since 1981. Colombia, the second-largest arabica producer, is slowly recovering from last year’s El Nino-induced drought.

Support remains for robusta coffee despite reduced production. Drought conditions have led to a 20% drop in Vietnam’s coffee production for the 2023/24 crop year, which is now marked at 1.472 million metric tons, the smallest in four years. Moreover, the Vietnam General Statistics Office noted a 17.1% year-on-year decline in coffee exports for 2024, down to 1.35 million metric tons. The Vietnam Coffee and Cocoa Association updated its 2024/25 production estimate downward, from 28 million bags to 26.5 million bags. Lastly, Vietnam’s Customs Department reported a 15.3% year-on-year drop in coffee exports from January to March, totaling 495,780 metric tons. Vietnam is the world’s leading producer of robusta coffee.

Reports of increasing global coffee exports add bearish pressure on prices. Conab noted on February 4 that Brazil’s 2024 coffee exports surged by 28.8% year on year to a historic 50.5 million bags. However, the International Coffee Organization (ICO) observed a 12.4% year-on-year decline in global coffee exports for December, totaling 10.73 million bags, and a 0.8% drop during the October-December period, amounting to 32.25 million bags.

The USDA’s biannual report released on December 18 provided mixed signals for coffee prices. The Foreign Agriculture Service (FAS) projects world coffee production for 2024/25 to rise by 4.0% year on year, reaching 174.855 million bags, spurred by a 1.5% increase in arabica production to 97.845 million bags and a 7.5% rise in robusta production to 77.01 million bags. However, the FAS also forecasts a 6.6% decline in ending stocks, reaching a 25-year low of 20.867 million bags, down from 22.347 million bags for the 2023/24 season. Furthermore, the FAS’s November update predicted Brazil’s coffee production at 66.4 million metric tons for 2024/25, falling from the prior estimate of 69.9 million metric tons, with projected ending inventories at 1.2 million bags, a 26% year-on-year decline.

Volcafe on December 17 reduced its forecast for Brazil’s arabica coffee crop in 2025/26 to 34.4 million bags, a reduction of about 11 million bags from its previous estimate made in September, following a crop tour that revealed the extent of Brazil’s prolonged drought conditions. Volcafe anticipates a global arabica coffee deficit of 8.5 million bags for the 2025/26 season, a widening deficit compared to 5.5 million bags projected for 2024/25 and marking the fifth consecutive year of deficits.

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

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