Global Coffee Supply Abundance Clashes with Brazilian Dryness, Pushing Price Recovery

The coffee market experienced a modest rebound this week as arabica and robusta futures responded to conflicting signals. March arabica contracts gained +2.55 points (+0.70%), while January robusta futures climbed +10 points (+0.24%), recovering from Monday’s losses. However, these gains proved fragile as the Brazilian real weakened to a 1.75-month low against the dollar, encouraging Brazilian producers to accelerate export sales and capping further price advances.

Supply Outlook Weighs Heavy on Coffee Market

The fundamental backdrop remains decidedly bearish despite some supportive factors. Brazil’s crop forecasting agency Conab recently raised its 2025 production forecast to 56.54 million bags, a 2.4% increase from the September estimate of 55.20 million bags. This upward revision, combined with robust export activity from Vietnam, creates an ample supply environment that pressures prices downward. Vietnam’s November coffee exports surged +39% year-over-year to 88,000 MT, with January-to-November shipments up +14.8% y/y to 1.398 million metric tons. The world’s largest robusta producer is projected to increase 2025/26 output by 6% to 1.76 MMT, marking a 4-year high.

Weather Stress in Brazil Provides Limited Support

While Brazil’s arabica heartland faces precipitation challenges, the relief proves insufficient to sustain the rally. Minas Gerais, the nation’s largest arabica-growing region, received only 11mm of rain in the week ending December 5—just 17% of the historical average. Yet global projections paint a picture of abundance: the USDA Foreign Agriculture Service forecasts world coffee production in 2025/26 will reach a record 178.68 million bags, with robusta production climbing +7.9% to 81.658 million bags even as arabica contracts -1.7% to 97.022 million bags.

Inventory Dynamics Show Mixed Signals

ICE-monitored arabica inventories have stabilized after hitting a 1.75-year low of 398,645 bags on November 20, recovering to 426,523 bags last Friday. Conversely, ICE robusta inventories fell to an 11.5-month low of 4,018 lots this week, suggesting tightness in one segment while the other remains adequate. Global coffee exports for the current marketing year (October-September) declined just 0.3% y/y to 138.658 million bags, per the International Coffee Organization, indicating steady flow despite supply concerns.

Regulatory and Geopolitical Factors Shape Market

The European Parliament’s November 26 decision to delay the EU deforestation regulation (EUDR) by one year removes a near-term supply constraint. This postponement allows EU countries to continue importing agricultural products from regions experiencing deforestation, keeping coffee supplies flowing into Europe. Meanwhile, US tariffs on Brazilian coffee imports have been lifted after previously suppressing American demand. During August-October when tariffs were active, US purchases of Brazilian coffee dropped 52% year-over-year to 983,970 bags, leaving US coffee inventories depleted and potentially supporting near-term demand recovery.

Market Outlook: Abundance Tempers Weather Concerns

The coffee market faces a structural surplus that limits price appreciation despite localized weather stress in Brazil and inventory tightness in specific segments. Vietnam’s potential 10% output increase in 2025/26 if weather cooperates, combined with Brazil’s forecasted production expansion, suggests global ending stocks may climb +4.9% to 22.819 million bags in 2025/26 from 21.752 million bags in 2024/25. Traders should monitor Brazilian precipitation closely, as additional drought stress could provide tactical rally opportunities, but longer-term supply fundamentals remain unfavorable for sustained price appreciation.