Coffee Market Update: Trends and Insights
In recent developments, coffee prices have shown a slight increase, bouncing back from early losses. This recovery has coincided with a decline in the dollar index, leading to some short covering in coffee futures. As of now, the July contract for arabica coffee has risen, reflecting market fluctuations.
Over the past few weeks, coffee prices have faced downward pressure primarily due to increasing production forecasts. The USDA’s Foreign Agriculture Service (FAS) recently projected that Brazil’s coffee production for the 2025/26 season will see a modest uptick, estimated to reach 65 million bags. Similarly, Vietnam, the largest producer of robusta coffee, is expected to produce around 31 million bags, representing a growth of 6.9% compared to the previous year.
Additionally, inventories reported by ICE are adding to the bearish sentiment in the market. The volume of robusta coffee stored has reached an eight-month high, while arabica coffee inventories have climbed to a 3.25-month high. These rising stock levels indicate a potential oversupply, causing prices to dip even further.
Recent trading activities revealed that arabica coffee fell to a three-week low influenced by signals indicating larger coffee supplies. Notably, the USDA forecasted a 5.1% increase in Honduras’ coffee production, projecting 5.8 million bags for the 2025/26 period. Furthermore, Brazil’s production estimates have been adjusted upwards, with notable firms increasing their forecasts significantly.
Concerns about demand are also casting a shadow on coffee prices. Some major global coffee importers have voiced apprehensions regarding the impact of the U.S. tariff on imports, which is expected to inflate prices and potentially dampen sales volumes.
Despite signals of stronger coffee supplies, some factors may limit the downside risks for coffee prices in the near term. Weather-related challenges in Brazil could result in reduced coffee yields. Recent reports indicate that the primary coffee-growing region in Minas Gerais experienced only 12% of its historical rainfall averages, raising concerns about crop viability.
On the export front, reports suggest a downturn in Brazilian coffee shipments, further supporting price stabilization. Data indicated that green coffee exports in April plummeted by 28% year-over-year, with the cumulative exports from January to April also showing a decline.
For robusta coffee, the production landscape is equally challenging. Vietnam’s coffee output has taken a hit due to drought conditions, leading to a production drop of 20% compared to the previous cycle. Consequently, forecasts for Vietnam’s coffee exports have also been adjusted downward.
The USDA’s biannual report released in December 2022 presented a mixed outlook for coffee prices. It anticipates a 4.0% increase in world coffee production for the 2024/25 season, with both arabica and robusta categories expected to rise. However, coffee inventories are projected to decline, hitting a 25-year low, contributing to tightening market conditions.
Looking ahead to the 2025/26 marketing year, adjustments have been made to Brazilian arabica production estimates, reflecting the severity of ongoing drought conditions. Projections indicate a global deficit of arabica coffee, marking a fifth consecutive year of shortages.
This intricate landscape of rising production forecasts, fluctuating inventories, and weather-related challenges continues to shape the coffee market. As industry stakeholders monitor these trends, the interplay between supply and demand dynamics remains crucial in determining price movements moving forward.
