Multiple Forces Drive Coffee Market Surge: Brazilian Weather Meets Indonesia Crisis and Tight Supplies

Coffee futures experienced a significant rally this week, with March arabica closing up 1.48% while January robusta gained 1.06%, as traders grappled with a confluence of bullish and bearish signals reshaping the global coffee landscape.

Immediate Catalysts: Brazilian Heat and Indonesian Floods

The immediate price spike was triggered by forecasts for an extended heat wave sweeping through Brazilian coffee-growing regions, particularly Minas Gerais, which supplies much of the world’s arabica. This timing coincided with concerning news from Indonesia, where widespread flooding has devastated arabica farms in northern Sumatra, potentially cutting the country’s coffee exports by as much as 15% during the 2025-26 season. As the world’s third-largest robusta producer, Indonesia’s supply disruptions reverberated across both arabica and robusta markets.

Meteorological data showed some relief: Minas Gerais received 38.3 mm of rain during the week of December 19, representing 76% of historical averages—a positive sign for Brazilian crop prospects despite earlier drought concerns.

The Inventory Wildcard

Global coffee stockpiles are tightening, though with notable volatility. ICE-monitored arabica inventories plunged to a 1.75-year low of 398,645 bags on November 20 before recovering to 456,477 bags by Wednesday. Robusta stocks similarly bottomed at 4,012 lots on December 10, rebounding to 4,278 lots by mid-week. These fluctuations underscore how fragile current supply balances remain.

Competing Headwinds: Supply Abundance vs. Demand Constraints

The uptrend faces significant headwinds from production forecasts. The USDA’s Foreign Agriculture Service projected world coffee production for 2025/26 will reach a record 178.848 million bags—a 2.0% year-over-year increase. However, this masks divergent trends: arabica production is expected to decline 4.7% to 95.515 million bags, while robusta production surges 10.9% to 83.333 million bags.

Brazilian output tells a cautionary tale. Despite Conab’s recent 2.4% production increase forecast to 56.54 million bags, the USDA projects a 3.1% decline to 63 million bags for 2025/26—suggesting earlier optimism may have been premature. Meanwhile, Vietnam, the world’s largest robusta producer, reported November exports jumped 39% year-over-year to 88,000 MT, with January-November shipments rising 14.8% to 1.398 million MT. Vietnam’s 2025/26 output is projected at 30.8 million bags (a 6.2% increase), approaching a 4-year high, with the Vietnam Coffee and Cocoa Association estimating potential production could rise 10% if favorable weather persists.

US Tariff Impact: A Fading Support

American coffee inventories remain historically tight, partly due to previous tariff disruptions. US purchases of Brazilian coffee from August through October collapsed 52% year-over-year to 983,970 bags when Trump administration tariffs were in effect. Though those tariffs have since been reduced, the damage to supply chains persists, keeping domestic US coffee stocks under pressure.

The Bottom Line: A Precarious Balance

The International Coffee Organization reported global coffee exports for the current marketing year fell 0.3% year-over-year to 138.658 million bags—signaling demand challenges despite supply constraints. Looking ahead, the USDA projects 2025/26 ending stocks will fall 5.4% to 20.148 million bags from 21.307 million bags in 2024/25, suggesting a further tightening ahead.

Coffee prices remain at an inflection point, where near-term weather events and supply disruptions battle against longer-term production recovery and demand uncertainties. For traders, the question isn’t whether supplies will tighten—it’s whether demand can absorb the additional robusta production flooding markets from Vietnam and elsewhere.