Tariff Tensions Drive Up Coffee Costs

Coffee Prices Face Pressure Amid Tariff Concerns and Supply Outlook

Coffee prices have seen a decline in recent trading sessions, with September arabica coffee (KCU25) falling by -5.30 (-1.77%) and September ICE robusta coffee (RMU25) dropping by -13 (-0.38%). This downward trend is being influenced by several factors, including concerns over tariffs and global supply dynamics.

One of the main causes for the pressure on coffee prices is the potential imposition of a 50% tariff on Brazilian coffee exports to the United States. President Trump has not yet exempted coffee from this tariff, which could significantly impact sales of Brazilian coffee in the U.S. market. This development may also lead to an increase in Brazil’s coffee inventories, further weighing on global prices.

Global Exports and Seasonal Factors

Despite the current downward pressure, some positive factors are still influencing the market. The International Coffee Organization (ICO) reported that global June coffee exports increased by +7.3% year-over-year to 11.69 million bags. However, cumulative exports from October to June were slightly lower at -0.2% year-over-year, totaling 104.14 million bags.

In terms of weather conditions, below-average rainfall in Brazil has been a positive factor for coffee prices. Somar Meteorologia noted that Minas Gerais, one of Brazil's largest arabica coffee-growing regions, received only 2.7 mm of rain during the week ended August 2, which is just 31% of the historical average. This dry spell could potentially affect the quality and yield of the upcoming harvest.

Inventory Levels and Market Positions

Another key factor affecting coffee prices is the level of inventory. ICE-monitored arabica coffee inventories fell to a 14.5-month low of 754,516 bags on Tuesday, which is supportive of higher prices. In contrast, robusta coffee inventories have risen to a 1-year high of 7,029 lots, creating a bearish outlook for robusta prices.

Funds have also taken a significant short position in robusta coffee futures. According to ICE Futures Europe, net-short positions in robusta futures increased by 1,226 to 5,854 in the week ended July 29, marking the highest level in two years. This excessive short position could lead to a short-covering rally if prices begin to rise.

Harvest Progress and Production Forecasts

The ongoing Brazil coffee harvest is another factor contributing to the current price weakness. Cooxupe, Brazil's largest coffee cooperative, reported that its harvest among members was 74% complete as of August 1. Additionally, Safras & Mercado indicated that Brazil's overall 2025/26 coffee harvest was 90% complete as of July 30, ahead of last year’s 87% and the five-year average of 84%.

In terms of production forecasts, the USDA's Foreign Agricultural Service (FAS) projected that Brazil's 2025/26 coffee production will increase by +0.5% year-over-year to 65 million bags. Vietnam, the world's largest producer of robusta coffee, is expected to see a 6.9% increase in output to a 4-year high of 31 million bags.

Export Trends and Drought Impact

Smaller coffee exports from Brazil have been a positive sign for prices. Cecafe reported that Brazil's total June green coffee exports fell by -31% year-over-year to 2.3 million bags, with arabica exports down -27% to 1.8 million bags and robusta exports declining by -42% to 476,334 bags.

However, Vietnam has faced challenges due to drought. The 2023/24 crop year saw a -20% decrease in coffee production to 1.472 MMT, the smallest crop in four years. Additionally, Vietnam's coffee exports fell by -17.1% year-over-year to 1.35 MMT in 2024.

Global Production and Stock Forecasts

The USDA's biannual report released on June 25 was bearish for coffee prices. It projected that world coffee production in 2025/26 will increase by +2.5% year-over-year to a record 178.68 million bags. However, there is a forecasted decrease in arabica production to 97.022 million bags and an increase in robusta production to 81.658 million bags.

Ending stocks for 2025/26 are expected to climb by +4.9% to 22.819 million bags, up from 21.752 million bags in 2024/25. Volcafe also projects a global 2025/26 arabica coffee deficit of -8.5 million bags, which is wider than the -5.5 million bag deficit for 2024/25, marking the fifth consecutive year of deficits.

Conclusion

As the coffee market continues to navigate these complex dynamics, traders and investors are closely monitoring developments in tariffs, weather patterns, and global production forecasts. These factors will play a critical role in shaping the future direction of coffee prices.