Arabica Coffee Trades Higher on Below-Average Rain in Brazil

Arabica coffee prices are seeing support today from below-average rain in Brazil, the world’s largest producer of arabica coffee. March arabica coffee (KCH25) is up +2.85 (+0.88%), while January ICE robusta coffee (RMF25) is down -10 (-0.20%).

Somar Meteorologia reported today that Minas Gerais, Brazil’s largest arabica coffee-growing region, received 43.6 mm of rain last week, which is only 83% of the historical average. The persistent dry conditions in this crucial region continue to weigh on production forecasts.

Coffee prices showed mixed trends on Friday, supported by a weaker dollar. However, today’s decline in the Brazilian real (^USDBRL) by -1.2% has added bearish pressure on prices. A weaker real typically incentivizes Brazilian coffee producers to increase exports, which can weigh on global coffee prices.

Adding to the bearish factors, ICE-monitored arabica coffee inventories climbed to a 2.5-year high of 985,990 bags last Friday. Similarly, robusta coffee inventories rose to a two-month high of 3,996 lots, rebounding from a 7.5-month low of 3,672 lots earlier in the week.

The outlook for Brazil’s coffee crop remains a significant driver of market sentiment. Last Friday, consultancy group Safras & Mercado estimated Brazil’s 2025/26 coffee crop at 62.45 million bags, down 5% year-on-year. The drop is attributed to drought conditions, with arabica output projected to fall 15% to 38.35 million bags.

Last Tuesday, Volcafe slashed its estimate for Brazil’s 2025/26 arabica production to 34.4 million bags, a sharp reduction of 11 million bags from its September forecast. This adjustment came after a crop tour revealed the severe impact of prolonged drought during Brazil’s critical flowering stage. Volcafe also projected a global arabica coffee deficit of 8.5 million bags for 2025/26, widening from the 5.5 million bag deficit in 2024/25, marking the fifth consecutive year of deficits.

The USDA’s bi-annual coffee report released last Wednesday offered mixed implications for the market. The Foreign Agriculture Service (FAS) projected global coffee production for 2024/25 to rise by 4% year-on-year to 174.855 million bags. Arabica production is expected to grow 1.5% to 97.845 million bags, while robusta production is forecasted to increase by 7.5% to 77.01 million bags.

However, the USDA also forecasted a significant tightening of ending stocks, projecting a decline of 6.6% year-on-year to a 24-year low of 20.867 million bags. The FAS also revised Brazil’s 2024/25 coffee production to 66.4 million metric tons, down from its previous forecast of 69.9 million metric tons. Ending inventories in Brazil are expected to fall 26% year-on-year to 1.2 million bags by June 2025.

Robusta coffee prices are underpinned by supply concerns in Vietnam, the world’s largest robusta producer. The Vietnam General Department of Customs reported last Wednesday that November coffee exports plunged 47% year-on-year to 63,019 metric tons. Year-to-date exports through November were down 14% to 1.22 million metric tons. Heavy rains in Vietnam delayed harvesting, contributing to the reduced export figures.

Vietnam’s coffee production for the 2023/24 crop year dropped 20% to 1.472 million metric tons due to drought, marking the smallest crop in four years. The USDA FAS projects Vietnam’s robusta production for 2024/25 to dip slightly to 27.9 million bags, down from 28 million bags in the previous season. Conversely, the Vietnam Coffee and Cocoa Association recently raised its 2024/25 production estimate to 28 million bags, up from its October forecast of 27 million bags.

The International Coffee Organization (ICO) recently reported a 15.1% year-on-year rise in global coffee exports for October 2024, marking a strong start to the 2024/25 season with shipments totaling 11.13 million bags. For the 2023/24 season, global exports rose 11.7% year-on-year to 137.27 million bags.

Brazil also set a record for green coffee exports in the 2023/24 season, shipping 47.3 million bags, a 33% increase year-on-year, according to Cecafe. However, the ICO warned that global coffee production for 2023/24 climbed 5.8% year-on-year to a record 178 million bags, while consumption grew only 2.2% to 177 million bags, resulting in a surplus of 1 million bags.

The dry weather induced by El Nino earlier this year may have lasting effects on coffee crops in South and Central America. Brazil has experienced below-average rainfall since April, damaging coffee trees during the crucial flowering stage for the 2025/26 crop. According to Brazil’s natural disaster monitoring center, Cemaden, the country is enduring its driest conditions since 1981.

Colombia, the second-largest arabica producer, continues to recover from drought conditions earlier this year, further adding to the complexity of the global coffee supply outlook.

As the market approaches the new year, the interplay between adverse weather, fluctuating inventories, and shifting production estimates will remain central to shaping coffee prices.