Global Coffee Supply Pressures Override Rally as Arabica Retreats

Arabica coffee faced headwinds on Tuesday as stronger dollar momentum derailed early session gains, ultimately closing down 1.95 points (-0.55%), while robusta futures advanced 62 points (+1.57%). Despite scaling 2-week peaks during intraday trading, the arabica market surrendered ground as currency strength triggered significant long liquidation across the complex.

Supply Dynamics Reshape Market Outlook

The global arabica coffee market confronts a complex supply picture with competing pressures from major producing regions. Brazil’s 2025 crop projections have expanded, with Conab raising its annual estimate by 2.4% to 56.54 million bags, though USDA forecasts suggest a modest 3.1% year-over-year decline to 63 million bags for 2025/26. Meanwhile, Vietnam’s robusta production trajectory points upward, with November exports surging 39% annually to 88,000 MT, and full-year projections climbing 6% to reach 1.76 million metric tons—marking a 4-year production high.

Weather disruptions in Indonesia have introduced acute supply concerns. Widespread flooding has devastated approximately one-third of the country’s arabica cultivation zones in northern Sumatra, potentially constraining coffee exports by as much as 15% during the 2025-26 marketing cycle. Conversely, Brazil’s precipitation deficit has drawn focus on Minas Gerais, where recent rainfall averaged just 17% of historical norms, creating crop uncertainty in the world’s largest coffee-producing region.

Inventory Fluctuations Signal Market Tightness

ICE-monitored arabica inventories present a bifurcated narrative. While stocks rallied from a 1.75-year nadir of 398,645 bags reached in November to 456,477 bags by mid-December, levels remain historically compressed. Robusta warehouse inventories similarly recovered from a 1-year low of 4,012 lots in December to 4,278 lots by week’s end, indicating persistent scarcity despite modest improvement.

US purchasing patterns reflect tariff-driven disruptions. American coffee imports from Brazil collapsed 52% year-over-year during the three-month period when elevated duties were operational, reaching just 983,970 bags. Although tariff assessments have subsequently been pared back, domestic US inventories remain structurally tight, constraining near-term demand recovery.

Production Forecasts Temper Price Momentum

The USDA Foreign Agriculture Service’s December outlook projects world coffee production advancing 2% annually to an all-time high of 178.848 million bags for 2025/26. This expansion masks differentiated trends: arabica output is forecast to decline 4.7% to 95.515 million bags, while robusta production surges 10.9% to 83.333 million bags. Ending global stocks are anticipated to contract 5.4% to 20.148 million bags from the prior year’s 21.307 million bags.

Vietnam’s exporters reported that 2025/26 coffee output could reach 30.8 million bags based on favorable meteorological conditions and acreage expansion, potentially adding 10% volume growth relative to the preceding harvest. These abundant supply projections weigh on arabica coffee sentiment despite near-term supply disruptions in competing origins.

Market Equilibrium Ahead

The arabica coffee complex navigates competing narratives between production abundance and regional supply constraints. International Coffee Organization data indicated global exports contracted marginally by 0.3% year-over-year through November, despite robust production forecasts. Currency fluctuations, inventory levels, and geopolitical supply risks will likely determine whether arabica coffee can sustain support from current structural tightness or succumb to longer-term oversupply dynamics.