Coffee prices drop as rain predictions in Brazil reduce worries about drought

Coffee Market Update: Prices Drop Amid Weather Shifts and Currency Strength

On Friday, March contracts for arabica coffee (KCH26) fell by 3.95%, closing down 14.70 points, while March ICE robusta coffee (RMH26) slipped 0.64%, ending the day 25 points lower.

The sharp decline in coffee prices was driven by forecasts predicting rainfall across central Brazil in the coming week, which helped ease concerns about ongoing dry conditions. Additionally, a surge in the US dollar index to its highest level in four weeks put downward pressure on commodities, including coffee.

Market Dynamics: Supply, Demand, and Inventories

This week, robusta coffee prices have faced downward pressure due to a surge in exports from Vietnam, the leading global supplier of robusta beans. According to Vietnam's National Statistics Office, coffee exports for 2025 have risen by 17.5% year-over-year, reaching 1.58 million metric tons.

On Thursday, arabica coffee prices reached a four-week peak, supported by lower-than-normal rainfall in Brazil, the top producer of arabica beans. Data from Somar Meteorologia indicated that Minas Gerais, Brazil's main arabica-growing region, received only 47.9 mm of rain in the week ending January 2—just 67% of the usual average.

Declining ICE-monitored coffee inventories have provided some support for prices. Arabica stocks tracked by ICE dropped to a 1.75-year low of 398,645 bags on November 20, before rebounding to a 2.5-month high of 461,829 bags by Wednesday. Robusta inventories also hit a one-year low of 4,012 lots on December 10, but recovered to a five-week high of 4,278 lots by late December.

US buyers have reduced their purchases of Brazilian coffee, largely due to previously high tariffs on imports from Brazil. Although these tariffs have since been lowered, US coffee inventories remain limited. Between August and October, when the tariffs were still in effect, US imports of Brazilian coffee fell by 52% compared to the same period the previous year, totaling 983,970 bags.

Production Outlook and Global Supply Trends

Expectations for abundant coffee supplies are putting pressure on prices. On December 4, Brazil's crop forecasting agency, Conab, increased its estimate for the country's 2025 coffee harvest by 2.4% to 56.54 million bags, up from the previous forecast of 55.20 million bags in September.

Rising coffee output from Vietnam is also weighing on prices. Projections for Vietnam's 2025/26 coffee crop suggest a 6% year-over-year increase to 1.76 million metric tons, or 29.4 million bags—the highest in four years. The Vietnam Coffee and Cocoa Association (Vicofa) stated in October that, provided favorable weather continues, the 2025/26 harvest could be 10% larger than the previous season. Vietnam remains the world's top robusta coffee producer.

Global Coffee Supply and Demand Insights

Signs of tightening global coffee supplies are lending some support to prices. The International Coffee Organization (ICO) reported on November 7 that worldwide coffee exports for the current marketing year (October to September) declined by 0.3% year-over-year to 138.658 million bags.

The USDA's Foreign Agriculture Service (FAS) released its bi-annual report on December 18, forecasting that global coffee production for 2025/26 will reach a record 178.848 million bags, up 2% from the previous year. The report anticipates a 4.7% drop in arabica output to 95.515 million bags, while robusta production is expected to jump 10.9% to 83.333 million bags. FAS projects Brazil's 2025/26 coffee harvest will decrease by 3.1% to 63 million bags, while Vietnam's output is set to rise 6.2% to a four-year high of 30.8 million bags. Ending stocks for 2025/26 are forecast to fall by 5.4% to 20.148 million bags, down from 21.307 million bags in 2024/25.