Brazil's Weather Crisis Reshapes the Global Arabica Market

The arabica coffee market is experiencing significant volatility, driven by a confluence of supply-side pressures and geopolitical factors reshaping global trade dynamics. Understanding these forces requires examining both immediate weather threats and longer-term structural shifts in global coffee production.

Dry Conditions Ignite Price Volatility

Brazil’s ongoing drought has emerged as the primary catalyst for arabica coffee rallies. Somar Meteorologia’s recent assessment revealed alarming conditions in Minas Gerais, the world’s most critical arabica-producing region, which recorded only 26.4 mm of rainfall during the week ending November 21—a shortfall of 51% below historical norms. This moisture deficit directly threatens crop development and has triggered sharp upward price movements in futures markets, with March arabica contracts surging on speculation about reduced future harvests.

In contrast, the robusta segment faces opposite pressures. Vietnam’s coffee-growing zones are bracing for drier conditions following weeks of heavy precipitation that delayed harvest operations. While the coastal flooding spared major coffee regions, the anticipated shift toward drier weather should accelerate harvest resumption in provinces like Dak Lak, potentially increasing supply pressures on global robusta inventories.

Tariff Exemptions and Supply Chain Disruption

A critical market development emerged when President Trump’s administration granted Brazilian agricultural products exemption from tariffs, specifically removing the 40% duty on Brazilian coffee that had previously disrupted US supply chains. This policy reversal reversed earlier bearish sentiment but highlights how trade policy volatility remains embedded in coffee market fundamentals.

The tariff episode had already inflicted measurable damage on US import patterns. During August through October—the peak period when Trump’s original levies took effect—American importers slashed Brazilian coffee purchases by 52% year-over-year to just 983,970 bags. Since Brazil supplies roughly one-third of America’s unroasted coffee, such dramatic import reductions created acute supply constraints for US roasters and retailers.

Inventory Compression Supports Price Support

The tightness in physical supply chains is reflected in commodity exchange data. ICE-monitored arabica inventories fell to their lowest level in 1.75 years, dropping to 398,645 bags by last Thursday. Robusta stockpiles similarly compressed to 4.5-month lows of 5,370 lots on Monday. These depleted inventory levels typically provide underlying price support by reducing the commercial buffer available to absorb supply disruptions or demand fluctuations.

Production Forecasts Present Mixed Signals

Looking ahead, production projections introduce considerable uncertainty. StoneX estimates that Brazil will generate 70.7 million bags during the 2026/27 marketing year, with arabica accounting for 47.2 million bags—representing a +29% year-over-year expansion. This substantial anticipated increase could eventually weigh on prices once harvested and delivered to markets.

Vietnam’s production trajectory presents a parallel growth story. The Vietnam National Statistics Office confirmed that coffee exports through October 2025 reached 1.31 million metric tons, an increase of 13.4% year-over-year. Looking forward, production for the 2025/26 season is projected to climb 6% year-over-year to 1.76 million metric tons (29.4 million bags), matching a 4-year production high. The Vietnam Coffee and Cocoa Association projects output could exceed the previous crop by an additional 10% if favorable weather persists.

Global Supply Remains Constrained

Despite regional production increases ahead, current global supply dynamics remain surprisingly tight. The International Coffee Organization reported on November 7 that global coffee exports for the current marketing year (October-September) declined 0.3% year-over-year to 138.658 million bags—a counterintuitive result given widespread production capacity. This paradox suggests that trade disruptions and logistical bottlenecks are currently constraining actual supply flows more than production capacity limitations.

Brazil’s domestic crop situation reinforces this constraint narrative. Conab, Brazil’s official crop assessment agency, trimmed its 2025 arabica production forecast by 4.9% in early September to 35.2 million bags, down from a May projection of 37.0 million bags. The country’s total coffee output estimate also contracted by 0.9% to 55.2 million bags from 55.7 million bags previously forecast.

Longer-Term Production Landscape

The US Department of Agriculture’s Foreign Agriculture Service outlined a more expansive long-term outlook during mid-2025 assessments. Global coffee production for 2025/26 is projected to expand by 2.5% year-over-year to a record 178.68 million bags. This growth masks divergent trends within coffee categories: arabica production is expected to contract by 1.7% to 97.022 million bags, while robusta output should surge 7.9% to 81.658 million bags, driven primarily by Vietnamese expansion.

For Brazil specifically, the USDA forecasts a modest 0.5% year-over-year increase to 65 million bags for 2025/26. Vietnam’s output is anticipated to rise 6.9% year-over-year to 31 million bags, representing a 4-year production peak.

The Inventory Question

Perhaps most significantly for medium-term price direction, the USDA projects that ending stocks for 2025/26 will climb 4.9% to 22.819 million bags from 21.752 million bags in the prior year. An expansion in global inventory levels, assuming these forecasts materialize, would typically exert downward pressure on prices once the supply enters the distribution pipeline.

The arabica market currently balances immediate weather-driven supply concerns against longer-term production forecasts suggesting ample availability. This tension between near-term constraint and forward abundance remains the defining dynamic for price direction through the coming quarters.