Coffee Prices Increase as Dollar Index Drops, Supply Outlook Weighs

July arabica coffee (KCN25) rose today by +2.30 (+0.62%), while July ICE robusta coffee (RMN25) gained +7 (+0.14%).

Today’s recovery in coffee prices comes after initial losses, driven by a decline in the dollar index (DXY00) to a two-week low, which sparked short covering in coffee futures.

Market Pressure from Increased Production Estimates

Coffee prices have encountered pressure in recent weeks due to expectations of higher production levels. The USDA’s Foreign Agriculture Service (FAS) recently projected Brazil’s 2025/26 coffee production will increase by +0.5% year-on-year to 65 million bags, while Vietnam’s output is expected to rise by +6.9% year-on-year to 31 million bags. Brazil is the leading producer of arabica coffee, and Vietnam leads in robusta coffee.

Inventory Increases Contribute to Bearish Sentiment

Rising inventories are further bearish for coffee prices. ICE-monitored robusta coffee inventories reached an eight-month high today of 5,341 lots. Similarly, arabica coffee inventories monitored by ICE rose to a three-and-a-quarter-month high of 866,951 bags on Tuesday.

Last Thursday, arabica coffee prices fell to a three-week low amid indications of expanded global coffee supplies. On May 9, the USDA forecasted that Honduras, the largest coffee producer in Central America, would see a +5.1% year-on-year production increase to 5.8 million bags. Additionally, consulting firm Safras & Mercado revised its Brazil 2025/26 coffee production estimate to 65.51 million bags, up from a previous estimate of 62.45 million bags. CONAB, Brazil’s crop forecasting agency, also raised its estimate for Brazil’s 2025 coffee production from 51.81 million bags to 55.7 million bags.

Demand Concerns Impact Prices

Concerns about demand are exerting downward pressure on coffee prices. Major commodity importers such as Starbucks, Hershey, and Mondelez International have indicated that the U.S.’s baseline 10% tariff on imports could raise prices and negatively impact sales volumes.

Completion of Brazil’s Coffee Sales Offers Insight

Moreover, the completion of Brazil’s coffee sales impacts market sentiment. As of May 13, Safras Mercado reported that 97% of Brazil’s 2024/25 coffee sales were completed, an increase from 94% at the same time last year.

Weather Concerns May Offset Downward Trends

Despite the bearish pressure, recent weather reports imply that coffee supply might face limitations. Somar Meteorologia indicated that Brazil’s largest arabica-growing region, Minas Gerais, received only 2.5 mm of rain in the week ending May 17, amounting to merely 12% of the historical average.

Support for Prices from Export Reductions

Signs of reduced coffee exports from Brazil support the market. Cecafe reported a -28% year-on-year decline in Brazil’s April green coffee exports, totaling 3.05 million bags, while January-April exports fell -15.5% year-on-year to 13.186 million bags.

Regional Production Variations Affect Robusta Coffee

Robusta coffee prices are buoyed by reduced production. Drought conditions have caused Vietnam’s coffee production for the 2023/24 crop year to drop by -20% to 1.472 million metric tons, marking the smallest harvest in four years. Vietnam’s General Statistics Office reported a -17.1% year-on-year drop in 2024 coffee exports to 1.35 million metric tons, with January-April exports for 2025 down -9.8% year-on-year to 663,000 metric tons. Additionally, the Vietnam Coffee and Cocoa Association revised its 2024/25 coffee production estimate from 28 million bags to 26.5 million bags. Conversely, Rabobank expects Brazil’s 2025/26 robusta coffee production to grow by +7.3% year-on-year to a record 24.7 million bags.

Long-Term Projections from USDA

The USDA’s biannual report released on December 18 presented a mixed outlook for coffee prices. The FAS forecasts that global coffee production for 2024/25 will rise by +4.0% year-on-year to 174.855 million bags, with arabica production increasing by +1.5% to 97.845 million bags and robusta by +7.5% to 77.01 million bags. Additionally, it projects 2024/25 ending stocks will decline by -6.6% to a 25-year low of 20.867 million bags, down from 22.347 million bags in 2023/24. Separately, the USDA revised Brazil’s 2024/25 coffee production estimate to 66.4 million bags, down from a prior prediction of 69.9 million bags, with inventories projected at 1.2 million bags, a -26% year-on-year decline.

Looking ahead to the 2025/26 marketing year, Volcafe lowered its Brazil arabica coffee production estimate to 34.4 million bags, down about 11 million bags from a previous September estimate due to reported weather issues. Volcafe anticipates a global arabica coffee shortfall of -8.5 million bags for 2025/26, broader than the -5.5 million bag deficit for 2024/25, marking 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 is solely for informational purposes. For more information, please view the Barchart Disclosure Policy
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