Lackluster Rains in Brazil Boost Coffee Prices

March arabica coffee (KCH26) on Tuesday closed up +2.55 (+0.70%), and January ICE robusta coffee (RMF26) closed up +10 (+0.24%).

Coffee prices rose on Tuesday, recovering some of Monday's sharp losses.  Below-normal precipitation in Brazil is supportive of coffee prices.  Somar Meteorologia reported Monday that Brazil's largest arabica coffee-growing area, Minas Gerais, received 11 mm of rain during the week ended December 5, or 17% of the historical average.  

Coffee prices fell back from their best levels on Tuesday after the Brazilian real (^USDBRL) fell to a 1.75-month low against the dollar.  The weaker real encourages export sales by Brazil's coffee producers.  

On Monday, arabica coffee fell to a 2-week low and robusta dropped to a 2.25-month low.  Coffee prices are under pressure amid an outlook for ample supplies.  Last Thursday, Conab, Brazil's crop forecasting agency, raised its total Brazil 2025 coffee production estimate by 2.4% to 56.54 million bags, from a September estimate of 55.20 million bags.  Also, Vietnam's National Statistics Office reported last Friday that Vietnam's Nov coffee exports jumped +39% y/y to 88,000 MT and that Jan-Nov coffee exports rose +14.8% y/y to 1.398 MMT.

In a bearish factor, the European Parliament on November 26 approved a 1-year delay to the deforestation law, which would keep coffee imports flowing.  The EU regulation, known as EUDR, aims to tackle deforestation in countries whose exports into the EU include key commodities such as coffee, soybeans, and cocoa.  The delay of the EUDR will allow EU countries to continue importing agricultural products from regions in Africa, Indonesia, and South America where deforestation is occurring.

Shrinking ICE coffee inventories are supportive of prices.  ICE-monitored arabica inventories fell to a 1.75-year low of 398,645 bags on November 20, although they recovered to a 1-month high of 426,523 bags last Friday.  ICE robusta coffee inventories fell to an 11.5-month low of 4,018 lots on Tuesday.  American buyers shunned Brazilian coffee purchases due to previous tariffs on US imports from Brazil.  Those US tariffs have since been dropped, but US coffee inventories are still tight.  US purchases of Brazilian coffee from August through October, during which President Trump's tariffs were in effect, dropped by 52% from the same period last year to 983,970 bags.

Increased Vietnamese coffee supplies are bearish for prices.  Vietnam's 2025/26 coffee production is projected to climb +6% y/y to 1.76 MMT, or 29.4 million bags, a 4-year high.  Also, the Vietnam Coffee and Cocoa Association (Vicofa) said on October 24 that Vietnam's coffee output in 2025/26 will be 10% higher than the previous crop year if weather conditions remain favorable.   Vietnam is the world's largest producer of robusta coffee.

Signs of tighter global coffee supplies are supportive of prices, as the International Coffee Organization (ICO) on November 7 reported that global coffee exports for the current marketing year (Oct-Sep) fell 0.3% y/y to 138.658 million bags.

The USDA's Foreign Agriculture Service (FAS) projected on June 25 that world coffee production in 2025/26 will increase by +2.5% y/y to a record 178.68 million bags, with a -1.7% decrease in arabica production to 97.022 million bags and a +7.9% increase in robusta production to 81.658 million bags.  FAS forecasted that Brazil's 2025/26 coffee production will increase by +0.5% y/y to 65 million bags and that Vietnam's 2025/26 coffee output will rise by 6.9% y/y to a 4-year high of 31 million bags.  FAS forecasts that 2025/26 ending stocks will climb by +4.9% to 22.819 million bags from 21.752 million bags in 2024/25.