Climate Changes in Brazil Pressure Global Coffee Markets

Climate Tension and Dollar Strength Drive Declines in Coffee Futures

The coffee markets experienced significant movements following rainfall forecasts in Brazil. Arabica coffee futures with March (KCH26) expiration declined by 3.41%, while the same period robusta variety on ICE (RMH26) fell by 1.02%. The climate context is crucial: anticipated rains in central Brazil for next week have eased previous concerns about prolonged droughts in the region. Simultaneously, the strengthening of the US dollar to levels not seen in four weeks has exerted additional pressure on commodity prices, including this strategic commodity.

Global Supply Dynamics: Vietnam Intensifies Competition

Vietnam, as the world’s leading producer of robusta coffee, has intensified upward pressure on supply. According to Vietnam’s National Statistics Office, coffee exports for 2025 have increased by 17.5% year-on-year, reaching 1.58 million metric tons. Production projections for 2025/26 point to a 6% annual increase, reaching 1.76 million metric tons (29.4 million bags), marking a four-year high. The Vietnam Coffee and Cacao Association (Vicofa) anticipates that, with sustained favorable weather conditions, the harvest could be up to 10% higher than the previous cycle.

Brazil Situation: Between Water Scarcity and Climate Recovery

Just a week ago, Brazil faced severe climate challenges. Minas Gerais, the main Brazilian Arabica-producing region, received only 47.9 mm of rain in the week ending January 2, representing just 67% of the historical average. This relative drought condition had driven Arabica prices to four-week highs. However, the outlook for rainfall in Brazil in the coming days has altered market expectations.

Production Projections: Increase in Brazil and Vietnam

Brazil’s crop forecast agency Conab updated its estimate for the 2025 harvest by 2.4%, projecting 56.54 million bags compared to the previous forecast of 55.20 million. However, the USDA’s Foreign Agricultural Service (FAS) maintains a more conservative outlook, predicting a 3.1% decline in Brazil for 2025/26 to 63 million bags. In contrast, projections for Vietnam point to a 6.2% growth to a four-year high of 30.8 million bags.

Inventory Levels and Their Impact on Price Formation

ICE-monitored inventories show contradictory signals. Arabica stocks reached a minimum of 1.75 years with 398,645 bags on November 20, then recovered to 461,829 bags on Wednesday (two-and-a-half months maximum). Robusta inventories follow a similar trend: falling to annual lows in December followed by recovery to five-week highs. These moderate levels provide some support to prices amid the global supply increase.

Impact of Tariffs on US Demand

US buyers have significantly reduced their purchases of Brazilian coffee. During the period with tariffs in place (August to October), imports fell by 52% year-on-year, totaling 983,970 bags. Although tariffs have subsequently been reduced, coffee inventories in the United States remain limited, restricting the capacity to absorb new supply.

Global Outlook: Record Production Amid Greater Arabica Contraction

The International Coffee Organization (ICO) reported that global exports for the current coffee year (October-September) decreased by 0.3% year-on-year to 138.658 million bags. FAS projections for 2025/26 anticipate a record global production of 178.848 million bags, a 2% annual growth. This global expansion contrasts with the projected 4.7% contraction in Arabica to 95.515 million bags, partially offset by a robust 10.9% increase in robusta to 83.333 million bags.

Final stocks for 2025/26 are expected to fall by 5.4% to 20.148 million bags from 21.307 million in 2024/25, suggesting that the global market will face more moderate supply pressures in upcoming cycles.