Coffee Prices Drop Amid Tariff Concerns

Coffee Market Faces Multiple Challenges

Coffee prices experienced a decline on Wednesday, with September arabica coffee (KCU25) closing down -5.30 (-1.77%) and September ICE robusta coffee (RMU25) falling -18 (-0.53%). The drop was attributed to concerns over tariffs, as President Trump has not yet exempted coffee from the 50% tariff on Brazilian exports. This potential tariff could negatively impact the sales of Brazilian coffee in the U.S., while simultaneously increasing Brazil's coffee inventories.

Global Coffee Exports and Production Trends

The International Coffee Organization (ICO) reported that global June coffee exports increased by +7.3% year-over-year (y/y) to 11.69 million bags. However, cumulative October-June coffee exports saw a slight decrease of -0.2% y/y at 104.14 million bags. These figures highlight the complex dynamics affecting the coffee market.

In Brazil, below-average rainfall in key growing regions like Minas Gerais is a positive factor for coffee prices. Somar Meteorologia noted that the area received only 31% of the historical average rainfall during the week ended August 2. This dry spell may lead to higher quality coffee beans, potentially supporting prices.

Inventory Levels and Market Sentiment

ICE-monitored arabica coffee inventories fell to a 14.5-month low of 751,044 bags on Wednesday, which is supportive of arabica prices. Conversely, robusta coffee inventories have risen to a one-year high of 7,029 lots, creating a bearish outlook for robusta prices. Additionally, funds have increased their net-short positions in ICE robusta futures, reaching 5,854 short positions in the week ended July 29—the highest level in two years. This could lead to short-covering if market conditions shift.

Harvest Progress and Supply Outlook

The ongoing Brazil coffee harvest is also influencing prices. Cooxupe, Brazil's largest coffee cooperative, reported that its members' harvest was 74% complete as of August 1. Safras & Mercado noted that the overall 2025/26 coffee harvest in Brazil was 90% complete as of July 30, ahead of previous years. This progress suggests an abundant supply, which may continue to weigh on prices.

Forecasted Production and Market Implications

The USDA's Foreign Agricultural Service (FAS) forecasted that Brazil's 2025/26 coffee production will increase by +0.5% y/y to 65 million bags, while Vietnam's output is expected to rise by 6.9% y/y to a four-year high of 31 million bags. These projections indicate a surplus in global coffee supplies, contributing to downward pressure on prices.

Smaller coffee exports from Brazil, particularly in June, were positive for prices. Cecafe reported that total Jun green coffee exports fell by -31% y/y to 2.3 million bags, with arabica exports down -27% y/y to 1.8 million bags and robusta exports declining by -42% y/y to 476,334 bags.

Impact of Drought and Export Performance

Vietnam faced challenges due to drought in the 2023/24 crop year, resulting in a -20% y/y decrease in coffee production to 1.472 MMT. Additionally, Vietnam's coffee exports fell by -17.1% y/y to 1.35 MMT. Despite these issues, the Vietnam Coffee and Cocoa Association reduced its 2024/25 production estimate, but January-July 2025 coffee exports showed a +6.9% y/y increase to 1.05 MMT.

USDA Report and Future Projections

The USDA's biannual report released on June 25 was bearish for coffee prices. It projected a +2.5% y/y increase in world coffee production for 2025/26 to a record 178.68 million bags. However, arabica production is expected to decrease by -1.7% to 97.022 million bags, while robusta production is forecasted to rise by +7.9% to 81.658 million bags. Ending stocks are anticipated to climb by +4.9% to 22.819 million bags.

Volcafe predicts a global 2025/26 arabica coffee deficit of -8.5 million bags, which would be the fifth consecutive year of deficits. This trend underscores the ongoing challenges in maintaining balance between supply and demand in the coffee market.

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