Why Coffee Traders Are Suddenly Bullish: Brazil's Export Drought and Shrinking Global Reserves

Coffee futures just posted a solid rally today—March arabica up +6.45% (+1.75%) and January robusta climbing +20 (+0.47%). But this isn’t random. The move is fueled by a real tightening in global coffee supplies, and if you’re watching the commodity space, here’s what actually matters.

The Supply Shock Nobody Expected

Brazil, which controls roughly a third of the world’s coffee output, just dropped a bombshell. Cecafe reported that November green coffee exports plummeted 27% year-over-year to just 3.3 million bags. That’s a significant contraction. What’s driving it? Drought. Minas Gerais, Brazil’s largest arabica-producing region, received only 11mm of rain the week ended December 5—just 17% of the historical average according to Somar Meteorologia.

The irony: Brazil’s crop forecasting agency Conab actually raised its 2025 production estimate by 2.4% to 56.54 million bags (up from September’s 55.20 million). So while production looks solid for next year, this year’s export shortage is real and immediate.

Vietnam Steps Up, But It’s Not Enough

Vietnam’s pulling some supply slack—November coffee exports jumped 39% year-over-year to 88,000 MT, with Jan-Nov volumes up 14.8% to 1.398 million MT. Vietnam’s 2025/26 production is projected to hit 31 million bags (up 6.9% y/y), a 4-year high. But here’s the thing: even Vietnam’s increased robusta shipments aren’t enough to offset Brazil’s export slowdown and tight percolated coffee demand globally.

The Inventory Picture Gets Tighter

This is where traders should pay attention. ICE arabica inventories fell to a 1.75-year low of 398,645 bags on November 20 (they recovered slightly to 426,523 bags last Friday). ICE robusta stockpiles hit an 11.5-month low of 4,012 lots today. Low inventories amplify price swings and reduce cushion if supplies tighten further.

The Tariff Factor: US Coffee Purchases Collapsed

Here’s a wildcard nobody talks about enough. US coffee buyers slashed Brazilian purchases during the Trump tariff period (Aug-Oct) by 52% year-over-year to just 983,970 bags. Those tariffs have since been dropped, but US coffee inventories remain lean. Expect pent-up US demand to eventually support prices when buying resumes.

What About the Regulatory Wildcard?

The EU’s deforestation regulation (EUDR) was supposed to tighten in 2024, but the European Parliament just approved a 1-year delay (announced November 26). This keeps coffee, soybeans, and cocoa flowing from deforestation-prone regions in Africa, Indonesia, and South America. The delay actually adds supply pressure, which is bearish for prices—but it’s offset by near-term export shortages.

The Bigger Picture: Global Coffee Exports Are Actually Contracting

The International Coffee Organization reported in November that global coffee exports for the current marketing year (Oct-Sep) fell 0.3% y/y to 138.658 million bags. That’s a contraction in a normally stable market. Meanwhile, the USDA’s Foreign Agriculture Service projects world coffee production for 2025/26 will hit a record 178.68 million bags (+2.5% y/y), but that masks a -1.7% decline in arabica offset by +7.9% growth in robusta.

Bottom Line

Coffee prices are moving on real supply constraints in the near term, even if 2025/26 looks oversupplied. Brazil’s export squeeze, tight inventories, and subdued US demand create near-term support. Vietnam’s rising robusta production could pressure prices later, but that’s a 2025/26 story. For now, traders are pricing in the immediate scarcity.