Global Coffee Supply Pressures Clash with Weather-Driven Support

Coffee futures markets showed mixed momentum this week as traders weighed competing forces shaping the outlook for the world’s most beloved commodity. March arabica contracts gained 2.55 points (0.70%) to close Tuesday’s session, while January robusta futures advanced 10 points (0.24%), reversing some of Monday’s decline as weather conditions in key producing regions drew fresh attention from market participants.

Brazil’s Dry Spell Becomes a Price Catalyst

The recent drought in Brazil’s coffee heartland is reshaping short-term market dynamics. Minas Gerais, responsible for the bulk of the nation’s arabica output, received just 11 mm of precipitation during the week ending December 5—a stark 83% shortfall from historical norms. This moisture deficit emerged as a temporary price floor, countering bearish sentiment that had gripped markets during the previous session.

However, the recovery proved short-lived. As the Brazilian real weakened to a 1.75-month low against the US dollar, the dynamic shifted. A depreciated currency typically incentivizes Brazilian producers to accelerate export volumes, potentially flooding markets with fresh supply and capping upside price momentum.

Production Forecasts Paint a Picture of Abundance

The longer-term backdrop remains decidedly bearish. Brazil’s crop agency Conab revised 2025 production expectations upward by 2.4%, now projecting 56.54 million bags compared to September’s 55.20 million bag forecast. This upward adjustment signals production resilience despite weather volatility.

Vietnam, the planet’s dominant robusta producer, is emerging as an even more significant headwind. November exports jumped 39% year-over-year to 88,000 MT, while cumulative January-November shipments climbed 14.8% to 1.398 million MT. Looking ahead, Vietnam’s 2025/26 production is anticipated to surge 6% to 1.76 million MT (29.4 million bags), potentially the strongest output in four years. The Vietnam Coffee and Cocoa Association suggests output could climb 10% further if weather cooperates.

Global Supply Dynamics on Display

The International Coffee Organization reported that global exports for the current marketing year declined just 0.3% year-over-year to 138.658 million bags—demonstrating the sector’s ability to maintain robust trade flows. The USDA’s Foreign Agriculture Service projects 2025/26 world production will increase 2.5% to a record 178.68 million bags, though this masks divergent trends: arabica output is expected to decline 1.7% while robusta production climbs 7.9%.

Ending inventories are projected to accumulate, rising 4.9% to 22.819 million bags from 21.752 million bags the previous year, further reinforcing supply abundance concerns.

The Inventory-Supply Paradox

While production swells, warehouse availability tells a more nuanced story. ICE-monitored arabica inventories struck a 1.75-year low of 398,645 bags on November 20, though they recovered to 426,523 bags last Friday. Robusta stockpiles fell to an 11.5-month low of 4,018 lots by Tuesday, suggesting near-term tightness persists at warehousing facilities.

US demand dynamics have shifted following tariff normalization. American purchases of Brazilian coffee collapsed 52% from August-October (983,970 bags) when Trump-era tariffs were active, compared to the same 2024 period. While those duties have been rescinded, US coffee inventories remain constrained, limiting near-term import acceleration.

Trade Policy Adds Another Layer

The European Parliament’s decision on November 26 to delay the deforestation regulation (EUDR) for one year removes a potential supply constraint. The regulation would have restricted imports from regions with ongoing deforestation, including parts of South America, Africa, and Indonesia. This reprieve ensures continued import flows, adding to supply pressures.

The confluence of rising production, expanding inventories, and policy support for import continuity suggests coffee markets face persistent selling pressure in the quarters ahead, even as weather variability and immediate warehouse shortages provide temporary support rallies.