Global Coffee Supply Imbalance Reshapes Market Dynamics: Brazil's Weather Woes Meet Vietnam's Production Surge

Market Volatility Reflects Competing Supply Pressures

Arabica and robusta coffee contracts are experiencing divergent price movements, with Brazil’s coffee sector facing mounting headwinds from unfavorable conditions. March arabica contracts (KCH26) have advanced 3.7% to gain 13.30 points, while March robusta futures (RMH26) rose 1.61%, adding 63 points. The arabica complex has hit its highest valuation in four weeks, reflecting a tug-of-war between supply constraints and production outlook concerns.

Weather Disruptions in Brazil Tighten Arabica Supply

Brazil, as the world’s primary arabica producer, is confronting a critical weather challenge. The Minas Gerais region—responsible for the majority of Brazil’s coffee output—recorded only 47.9 mm of rainfall in the week through January 2, representing just 67% of historical averages according to Somar Meteorologia. This moisture deficit threatens crop development and export volumes.

Compounding the weather impact, a stronger Brazilian real reaching one-month highs against the US dollar has dampened export competitiveness for local producers. This currency appreciation makes Brazil’s coffee exports less attractive to foreign buyers, inadvertently creating upward price pressure as supply considerations tighten.

Inventory Dynamics Support Price Floors

ICE-monitored arabica stocks have fluctuated significantly, falling to a 1.75-year low of 398,645 bags in November before recovering to 456,477 bags by late December. Similarly, robusta inventories hit a one-year low of 4,012 lots in mid-December, subsequently rising to 4,278 lots by month-end. These inventory swings underscore thin supply buffers in key markets.

US coffee inventories remain constrained following tariff-related import disruptions. Between August and October, Brazilian coffee imports to the US fell 52% year-over-year to 983,970 bags. Although tariffs have since been reduced, inventory replenishment remains incomplete, sustaining price support.

Vietnam Production Momentum Creates Robusta Headwinds

Vietnam, the world’s leading robusta supplier, is expanding output capacity rapidly. The National Statistics Office reported 2025 coffee exports reached 1.58 million metric tons, a 17.5% year-over-year increase. Vietnam’s 2025/26 production is forecasted to grow 6% to 1.76 million metric tons (29.4 million bags)—the highest in four years—potentially capping upside price movement for robusta contracts.

Contrasting Supply Forecasts Shape Market Direction

The USDA’s Foreign Agriculture Service projects global coffee production for 2025/26 at a record 178.848 million bags, up 2% annually. However, this aggregate masks significant divergences: arabica output is expected to decline 4.7% to 95.515 million bags, while robusta production surges 10.9% to 83.333 million bags.

Brazil’s coffee harvest is anticipated to contract 3.1% to 63 million bags, while Vietnam’s output is set to climb 6.2% to 30.8 million bags. The International Coffee Organization noted that worldwide coffee exports for the current marketing year (October-September) slipped 0.3% year-over-year to 138.658 million bags, indicating a gradual tightening despite rising production projections.

Ending stocks for 2025/26 are predicted to fall 5.4% to 20.148 million bags from 21.307 million bags in 2024/25, reflecting a transition toward tighter global supply balances that may continue supporting both arabica and robusta valuations in the quarters ahead.