Higher coffee prices solidify due to reinforcement in Brazil's Real currency, provoking brief covering among speculators.
From Coffee Bean to Dollar, Here's the Unfiltered Run-Down on Coffee Prices
Last Wednesday, the price of July Arabica coffee (KCN25) clocked a 1.55% surge (+5.30), and ICE Robusta coffee (RMN25) squeezed out a 0.83% rise (+37). What's causing this caffeinated stir?
It all starts with the Brazilian real (^USDBRL). On Wednesday, the real shot up to a 1-1/2 week high against the dollar, triggered a flurry of short covering in coffee futures. As the real gains strength, it discourages exports from Brazil's coffee producers, leading to a potential supply crunch and, in turn, price increases.
Now, imagine this cat-and-mouse game between the dollar and the real has been going on for quite some time. On Tuesday, Arabica coffee slumped to a 1-3/4 month low, while Robusta dropped to a 7-month nadir. Production pressures in Brazil have been crushing coffee prices, with growth in Brazil's 2025/26 harvest sitting just below the five-year average for the same time of year.
The coffee market, however, has been grappling with more than just harvest stresses. Fears about higher production and ample supplies have been weighing on prices. On May 19, the USDA's Foreign Agricultural Service (FAS) projected that Brazil's 2025/26 coffee production would climb 0.5% year-over-year (y/y) to 65 million bags. Combine that with an anticipated 6.9% y/y rise in Vietnam's 2025/26 coffee output to 31 million bags, and you've got a recipe for a bear market in beans.
With all this talk about bumper crops and surplus supplies, it might come as a surprise that ICE coffee inventories are undercutting prices. As of May 30, ICE-monitored robusta coffee inventories stood at an 8-1/2 month high of 5,438 lots, while arabica inventories spiked to a 4-month high of 892,468 bags last Tuesday.
The picture now looks a bit rosier, though, thanks to a hiccup here and there. On May 9, the USDA forecast 2025/26 coffee production in Honduras, Central America's largest producer, would climb +5.1% y/y to 5.8 million bags. Meanwhile, consulting firm Safras & Mercado bumped up its Brazil 2025/26 coffee production estimate to 65.51 million bags. And let's not forget about Conab, Brazil's crop forecasting agency, which raised its overall Brazil 2025 coffee production estimate to 55.7 million bags from a January estimate of 51.81 million bags.
While these boosts in production may seem daunting, other factors are helping to prop up coffee prices. For one, concerns about poor weather in Brazil could reduce crop yields and potentially lead to a shortage of beans. In the Minas Gerais region, which produces the vast majority of Brazilian Arabica coffee, there's been no rain in the week ending May 31. Small coffee exports from Brazil could also add to the pressure on prices, with Cecafe reporting that Brazil's April green coffee exports fell -28% y/y to 3.05 million bags.
But it's not all good news for the coffee world. Demand concerns are hangin' heavy in the air, with several global commodity importers -- including Starbucks, Hershey, and Mondelez International -- raising concerns that the US's baseline 10% tariff on imports will raise prices and further pressure sales volumes. One silver lining? A drought in Vietnam has reduced robusta production, which could offer a glimmer of hope for price increases.
The USDA's December 18 biannual report paints a mixed picture for coffee prices. While it projected that world coffee production in 2024/25 would increase by 4.0% y/y to 174.855 million bags, ending stocks are forecasted to drop by 6.6% to a 25-year low of 20.867 million bags. Interestingly, the USDA's FAS on November 22 predicted Brazil's 2024/25 coffee production to fall below its previous forecast of 69.9 MMT, while forecasting Brazil's coffee inventories at 1.2 million bags at the end of the 2024/25 season in June.
So, what's a coffee fiend to do? Keep a close eye on those ever-changing dollar-real dynamics and fluctuations in Brazilian coffee production. And hey, maybe try brewing your own java at home – it could save you a pretty penny!
In the midst of the fluctuating coffee market, concerns about higher production and ample supplies, such as Brazil's and Vietnam's predicted growth in coffee output, have been weighing on prices. However, factors like potential weather-related crop reductions in Brazil, small coffee exports from Brazil, and a drought in Vietnam that could decrease robusta production may contribute to price increases.
