Coffee Prices Rebound as Dollar Weakens, but Surplus Fears Persist

Coffee futures recover amid dollar weakness, but forecasts for larger crops in Brazil and Vietnam, rising inventories, and demand concerns weigh on market sentiment.

Coffee prices staged a modest recovery on Wednesday, May 21, 2025, supported by a weakening U.S. dollar that prompted short covering in the futures market. July arabica coffee (KCN25) settled up by +1.00 (+0.27%), while July ICE robusta coffee (RMN25) closed unchanged. Earlier in the day, both contracts had been under pressure, but a drop in the U.S. Dollar Index (DXY00) to a two-week low helped turn sentiment around.

The temporary price rebound followed a turbulent three-week period of bearish momentum for coffee futures. The primary downward driver has been an increasingly optimistic global production outlook. The U.S. Department of Agriculture (USDA) recently projected that Brazil’s 2025/26 coffee production would rise by +0.5% year-on-year to 65 million bags, while Vietnam’s output is expected to increase by +6.9% to 31 million bags. Brazil remains the world’s largest arabica coffee producer, and Vietnam is the top supplier of robusta.

Further bearish pressure came from ICE-monitored inventory increases. Robusta stocks rose to an 8-month high of 5,341 lots, while arabica inventories reached a 3.5-month high of 876,019 bags. These growing reserves reflect faster-than-expected shipments and subdued demand across several key markets.

In recent weeks, additional forecasts have pointed to stronger supply fundamentals. Honduras, Central America’s leading coffee producer, is expected to produce 5.8 million bags in 2025/26, a +5.1% year-on-year increase. Brazilian production estimates have also been revised upward by both Safras & Mercado and Brazil’s national crop agency, Conab. Safras now sees Brazil’s total 2025/26 coffee output at 65.51 million bags, up from a prior estimate of 62.45 million. Conab raised its 2025 forecast to 55.7 million bags, compared to 51.81 million in January.

Sales data is adding to the sense of oversupply. Safras reported that 97% of Brazil’s 2024/25 crop had been sold as of May 13, ahead of the 94% pace at the same time last year. Meanwhile, export data continues to show weakness. Cecafe reported that Brazil’s green coffee exports fell by -28% year-on-year in April to 3.05 million bags, and exports from January through April declined -15.5% to 13.186 million bags.

While production is on the rise, the demand outlook remains fragile. Major commodity buyers such as Starbucks, Hershey, and Mondelez International have warned that the U.S. government’s 10% baseline import tariff could raise retail prices and reduce coffee consumption, adding pressure on sales volumes.

Despite this broadly bearish outlook, several factors may help to limit further downside in the near term. Brazil’s weather remains a critical variable. Somar Meteorologia reported that Minas Gerais, Brazil’s primary arabica-growing region, received only 2.5 mm of rainfall in the week ending May 17—just 12% of the historical average. Extended drought conditions have already prompted downward revisions of Brazil’s arabica outlook.

In its December 2024 report, Volcafe revised its estimate for Brazil’s 2025/26 arabica crop to 34.4 million bags, down by 11 million from its September forecast, citing severe drought damage. Volcafe now projects a global arabica deficit of -8.5 million bags in 2025/26, widening from the -5.5 million bag deficit estimated for 2024/25. If confirmed, this would mark the fifth consecutive annual arabica supply shortfall.

The robusta market is also showing signs of tightening. Vietnam’s robusta output in 2023/24 dropped -20% to 1.472 million metric tons (MMT), its lowest level in four years, due to drought. The Vietnam General Statistics Office reported that 2024 coffee exports fell -17.1% to 1.35 MMT. In the first four months of 2025, Vietnam’s coffee exports were down -9.8% year-on-year to 663,000 MT. The Vietnam Coffee and Cocoa Association revised its 2024/25 output forecast down to 26.5 million bags from an earlier estimate of 28 million.

While Rabobank remains optimistic on Brazil’s 2025/26 robusta crop, projecting a record 24.7 million bags (+7.3%), this may not fully offset Vietnamese losses. Meanwhile, the USDA’s global coffee outlook, issued in December, forecast 2024/25 world production to rise +4.0% to 174.855 million bags. However, global ending stocks are expected to decline -6.6% to 20.867 million bags, the lowest in 25 years, raising concerns about longer-term supply security.

The USDA’s own estimate for Brazil’s coffee inventories projects a decline to 1.2 million bags by the end of the 2024/25 season, down -26% year-on-year. These tight inventory projections contrast with rising short-term supply and may support prices if weather concerns in Brazil intensify.

With futures prices reacting to every shift in weather, inventories, and global trade policy, the coffee market remains volatile. While dollar weakness and export concerns have supported prices in the short term, the broader trend remains fragile as the world braces for another complex, weather-sensitive, and trade-influenced coffee cycle.