Coffee prices have experienced a significant uptick, reaching their highest levels in a week, primarily driven by fluctuations in the Brazilian real and ongoing concerns about weather-related impacts on crop yields. On Thursday, July arabica coffee closed at $3.60, reflecting a rise of 3.93%, while robusta coffee increased by 2.71%, closing at $4.61. These movements in pricing underscore the intricate relationship between currency valuations and agricultural commodities, particularly in the context of Brazil, the world’s largest producer of arabica coffee.
The surge in coffee prices can be attributed to the strengthening of the Brazilian real against the U.S. dollar. On the same day, the Brazilian currency reached a 7.5-month peak, prompting speculation and short covering among investors, which often occurs when traders buy back borrowed assets to close positions and mitigate losses. A stronger real typically makes Brazilian coffee more expensive for foreign buyers, which can limit export activities. This, combined with adverse weather conditions reported in Brazil’s key coffee-growing regions, has put upward pressure on coffee prices.
Weather patterns have been a primary concern for coffee producers, particularly with reports indicating that Minas Gerais, Brazil’s most significant arabica coffee-growing area, received no rain for an entire week leading up to May 31. This lack of precipitation could adversely affect crop yields, further exacerbating the pressures on supply. Furthermore, while there was a temporary decline in coffee prices earlier in May due to harvest pressures, resource availability and ongoing production forecasts have also played critical roles in shaping market dynamics.
According to the latest data from the USDA’s Foreign Agricultural Service (FAS), Brazil’s coffee production for the 2025/26 marketing year is projected to increase by 0.5% year-over-year to approximately 65 million bags. Meanwhile, Vietnam, another key player in the global coffee market and the largest producer of robusta coffee, anticipates a more substantial uptick in production, forecasting a 6.9% rise to 31 million bags. These projections are significant in a market that has seen its share of volatility in recent months due to trade tensions and fluctuation in demand from major importing countries such as the United States.
The current supply environment in Brazil has prompted mixed reactions from market analysts. While the FAS suggests overall production will rise, other reports indicate that Brazil’s 2025 coffee harvest is only 20% complete, slightly below the five-year average of 21% for the same time of year. Concerns persist that if weather patterns do not improve, the rising output projections may not translate into increased export volumes.
In a developing situation, the International Coffee Organization (ICO) also noted changes in global coffee inventories that have contributed to the fluctuating market landscape. As of late May, ICE-monitored robusta coffee inventories increased to an 8.5-month high of 5,438 lots, while arabica coffee inventories reached a four-month high of 892,468 bags. Such rising stock levels have implications for market prices, often contributing to downward pressure due to the greater availability of supply.
Further contributing to the complex interplay of factors influencing coffee prices, several industry players have raised concerns regarding demand. Major corporations in the food and beverage sector, including major coffee buyers like Starbucks and Mondelez International, have expressed that the imposition of a 10% baseline tariff on imported goods may drive up prices and subsequently intensify pressures on sales volumes. These sentiment shifts often ripple through the market, affecting global coffee prices.
Conversely, reduced green coffee exports from Brazil add a bullish element to the coffee price outlook. Recent figures released by Cecafe revealed that Brazilian exports of green coffee fell by 28% year-over-year in April, totaling 3.05 million bags. The cumulative exports for the first four months of the year also showed a decline of 15.5% compared to the previous year. These decreases indicate challenges ahead, particularly for producers dependent on international markets.
In Vietnam, reduced production forecasts have also emerged amid rising concerns over climatic conditions affecting crop yield. Reports indicate that with drought affecting the 2023/24 crop year, Vietnam’s coffee production is expected to contract by approximately 20% to 1.472 million metric tons, marking the smallest harvest in four years. Correspondingly, Vietnam’s coffee exports for the first part of 2024 have diminished, down by 17.1% year-on-year to 1.35 million metric tons.
Despite these declines, outlooks from the USDA indicate potential recovery for Vietnam in upcoming years. The FAS has projected that Vietnam’s coffee crop for the 2025/26 period may advance by 7% year-over-year, reaching a four-year high of 30 million bags. This projection presents a contrasting view amidst current challenges, highlighting the unpredictable nature of agricultural production influenced by external conditions.
As detailed in a recent report from Volcafe, the overall global coffee market is bracing for a growing deficit. The report has cut Brazil’s arabica production estimate to approximately 34.4 million bags for the 2025/26 marketing year. This figure signifies a notable reduction of about 11 million bags compared to initial forecasts, resulting from the harsh realities of ongoing drought conditions affecting coffee crops across Brazil. The anticipated shortfall aligns with broader concerns that the world may face a cumulative arabica coffee deficit of around 8.5 million bags, marking the fifth consecutive year of supply deficits for this important commodity.
In summary, the coffee market is navigating a complex landscape marked by currency fluctuations, production forecasts, and shifting demand dynamics. As leading producers like Brazil and Vietnam face environmental and economic pressures, the consequences on global coffee prices, consumer choice, and broader market health remain intertwined. The current situation reflects not only the immediate challenges of agricultural production but also highlights the intricate balance of supply and demand in determining market trajectories. Stakeholders across the coffee supply chain are closely monitoring these developments, mindful that changes can rapidly influence both pricing strategies and consumer behavior in this essential global market.