Coffee Prices Surge Due to Supply Issues

Coffee Prices Surge Amid Supply Concerns and Weather Woes

Coffee prices have seen a significant rise today, with December arabica coffee (KCZ25) climbing by +17.45 (+4.40%) and November ICE robusta coffee (RMX25) rising by +193 (+4.19%). This surge is driven by multiple factors, including supply-side challenges and weather-related concerns in key coffee-producing regions.

The Dec arabica contract hit a new contract high, while the nearest-futures (U25) arabica also reached a 4.5-month high. Meanwhile, robusta coffee posted a 2-week high. These gains are largely attributed to the lack of rainfall in Brazil's coffee-growing areas, particularly in Minas Gerais, which is the largest arabica coffee-growing region. According to Somar Meteorologia, the area received no rain during the week ended September 13, raising concerns about the upcoming critical flowering period for coffee trees.

Impact of the Brazilian Real on Coffee Prices

In addition to weather conditions, the strength of the Brazilian real against the dollar has also contributed to higher coffee prices. The real (^USDBRL) recently rallied to a 15-month high against the dollar, making it more expensive for Brazilian producers to export their coffee. This dynamic discourages export sales and supports higher domestic prices.

Tariff Concerns and U.S. Supply Tightness

Another factor affecting coffee prices is the concern over tighter U.S. coffee supplies due to tariffs. The 50% tariffs imposed on U.S. imports from Brazil have led American buyers to avoid new contracts for purchasing Brazilian coffee beans. As a result, U.S. supplies are tightening, as approximately one-third of America’s unroasted coffee comes from Brazil.

Inventory Levels and Crop Forecasts

ICE-monitored inventories for both arabica and robusta coffee have fallen to significant lows. Arabica inventories dropped to a 16-month low of 669,2251 bags last Friday, while robusta inventories fell to a 2-week low of 6,556 lots today. These tight inventory levels provide additional support for prices.

Conab, Brazil's crop forecasting agency, recently reduced its 2025 arabica coffee crop estimate by -4.9% to 35.2 million bags from a May forecast of 37.0 million bags. The total Brazil 2025 coffee production estimate was also cut by -0.9% to 55.2 million bags from 55.7 million bags.

Global Export Trends and Drought Effects

Global coffee exports saw a decline in July, falling by -1.6% year-over-year to 11.6 million bags. Cumulative October-July exports also declined slightly by -0.3% to 115.615 million bags. These trends indicate a slowdown in global trade, which is supportive of higher prices.

In Vietnam, drought conditions have significantly impacted coffee production. The 2023/24 crop year saw a -20% decrease in production to 1.472 MMT, the smallest crop in four years. Additionally, Vietnam's coffee exports in 2024 fell by -17.1% to 1.35 MMT. However, the Jan-Aug 2025 coffee exports showed an increase of +7.8% to 1.141 MMT.

Production Projections and Market Outlook

The USDA Foreign Agriculture Service (FAS) projected that world coffee production in 2025/26 will increase by +2.5% year-over-year to 178.68 million bags. However, this growth is uneven, 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.

Despite these projections, Volcafe is forecasting a global 2025/26 arabica coffee deficit of -8.5 million bags, wider than the -5.5 million bag deficit for 2024/25. This marks the fifth consecutive year of deficits, indicating ongoing supply constraints.

Harvest Pressures and Market Dynamics

Harvest pressures in Brazil have also influenced market dynamics. Cooxupe, Brazil's largest coffee cooperative, reported that its members’ harvest was 97% complete as of September 5. Safras & Mercado noted that the overall 2025/26 coffee harvest was 99% complete as of August 20, ahead of the previous year’s level of 98%. This indicates that the harvest is progressing faster than expected, which could put downward pressure on prices.

Brazil's Trade Ministry reported that July unroasted coffee exports fell by -20.4% year-over-year to 161,000 MT. Cecafe, an exporter group, reported that July green coffee exports fell by -28% to 2.4 million bags, with arabica exports down -21% and robusta exports plunging -49%.

These developments highlight the complex interplay of factors influencing coffee prices, from weather conditions and tariffs to inventory levels and global trade trends. As the market continues to monitor these dynamics, coffee prices are likely to remain volatile in the coming months.