Coffee Costs Rise Amid Supply Concerns

Coffee Prices Surge on Supply Concerns and Weather Conditions

Coffee prices experienced a significant upward movement on Monday, with December arabica coffee closing up by 5.24% at +20.80, and November ICE robusta coffee rising by 5.24% to +241. This surge was driven by several factors, including supply constraints, weather conditions in key producing regions, and shifting trade dynamics.

The lack of rainfall in Brazil’s coffee-growing areas, particularly in Minas Gerais, has raised concerns about the upcoming flowering period for coffee trees. According to Somar Meteorologia, no rain was recorded in the region during the week ending September 13, which is critical for the development of coffee crops. This dry spell is contributing to the sharp increase in coffee prices as it threatens the quality and quantity of the harvest.

In addition to weather-related concerns, the strength of the Brazilian real against the U.S. dollar also plays a role in influencing coffee prices. The real reached a 15-month high against the dollar on Monday, making exports from Brazil less attractive. This dynamic could further reduce the volume of coffee available in international markets, thereby supporting higher prices.

Tariffs imposed on U.S. imports from Brazil have also contributed to tighter coffee supplies in the United States. American buyers are avoiding new contracts for Brazilian coffee due to a 50% tariff, leading to a decrease in the availability of unroasted coffee beans in the U.S. market. Given that approximately one-third of America’s unroasted coffee comes from Brazil, this situation is creating a ripple effect across the global coffee supply chain.

Another factor affecting coffee prices is the decline in ICE coffee inventories. Arabica coffee inventories fell to a 16-month low of 666,337 bags, while robusta coffee inventories dropped to a 2-week low of 6,556 lots. These inventory levels signal a tightening supply, which can lead to increased price volatility.

Conab, Brazil's crop forecasting agency, recently revised its estimates for the 2025 arabica coffee crop downward by 4.9%, reducing the forecast to 35.2 million bags from 37.0 million bags. Similarly, the total 2025 coffee production estimate was cut by 0.9% to 55.2 million bags. These reductions reflect growing concerns about the impact of adverse weather conditions on Brazil's coffee output.

On the export front, global coffee exports saw a slight decline in July, falling by 1.6% year-over-year to 11.6 million bags. Cumulative exports from October to July also decreased by 0.3% to 115.615 million bags. However, reduced exports from Brazil have provided some support to coffee prices, as the country remains a major player in the global coffee market.

Despite these challenges, there are signs of potential relief. Brazil's Cooxupe coffee co-op reported that its members had completed 97% of the harvest as of September 5. Additionally, Safras & Mercado noted that the overall 2025/26 coffee harvest was 99% complete as of August 20. These figures suggest that the harvest is progressing faster than in previous years, which could ease pressure on prices in the coming months.

Vietnam's coffee production also faced setbacks in the 2023/24 crop year, with a 20% decline to 1.472 million metric tons. Vietnam's coffee exports for 2024 also fell by 17.1% year-over-year to 1.35 million metric tons. However, the Vietnam Coffee and Cocoa Association has revised its 2024/25 production estimate to 26.5 million bags, reflecting ongoing uncertainty in the sector.

Looking ahead, the USDA Foreign Agriculture Service (FAS) projected a 2.5% increase in global coffee production for 2025/26, reaching 178.68 million bags. However, Volcafe has warned of a potential global arabica coffee deficit of 8.5 million bags for the same period, indicating continued supply concerns.

As coffee prices continue to fluctuate, investors and traders are closely monitoring developments in key producing regions and global trade policies. The combination of weather conditions, tariffs, and inventory levels will likely play a crucial role in shaping the future of the coffee market.