Global Coffee Supply Surge Triggers Market Correction as Brazil Weather Brings Relief

Supply Abundance Pressures Coffee Futures Amid Currency Headwinds

The coffee market entered a correction phase today following projections of record global production and improving weather conditions in Brazil. Robusta coffee futures faced particular weakness, reflecting both supply-side abundance and shifting currency dynamics that have created a challenging environment for commodity investors.

Near-Term Price Movements and Market Drivers

March arabica coffee futures (KCH26) recorded a 3.41% decline in today’s session, while March ICE robusta coffee (RMH26) dropped 1.02%. Two primary factors converged to pressure prices: anticipated rainfall across Brazil’s key coffee-growing regions easing drought concerns, and U.S. dollar strength reaching its highest point in four weeks—a development that typically dampens demand for dollar-denominated commodities.

The robusta segment faced particular headwinds this week as Vietnam, which dominates global robusta production, demonstrated export strength. Vietnam’s National Statistics Office confirmed that 2025 coffee exports surged 17.5% year-over-year to 1.58 million metric tons, adding to market supply perceptions.

Production Forecasts Paint Picture of Abundance

The most significant pressure on prices stems from global production expectations. The USDA’s Foreign Agriculture Service released its December 18 bi-annual assessment, projecting worldwide coffee production for 2025/26 at a record 178.848 million bags—a 2% increase year-over-year. This production surge comes despite a 4.7% contraction in arabica output to 95.515 million bags, offset by a robust 10.9% surge in robusta production climbing to 83.333 million bags.

Brazil’s harvest dynamics present a mixed picture. While Conab, Brazil’s crop forecasting agency, raised its 2025 harvest estimate by 2.4% to 56.54 million bags in early December, the USDA forecasts Brazil’s 2025/26 production will decline 3.1% to 63 million bags. Vietnam, conversely, projects significant growth—output is anticipated to climb 6.2% to 30.8 million bags, marking a four-year high. The Vietnam Coffee and Cocoa Association (Vicofa) suggests favorable weather could support an even larger crop, potentially 10% above prior-year levels.

Weather Patterns and Regional Supply Considerations

The rainfall forecast provides temporary relief to arabica pricing concerns. Earlier in the week, arabica futures had touched four-week highs after data revealed Brazil’s Minas Gerais region—responsible for most arabica production—received only 47.9 mm of rain in the week ending January 2, representing just 67% of historical averages. The prospect of incoming moisture has eased these drought anxieties.

Inventory trends offer limited support despite recent adjustments. ICE arabica stocks hit a 1.75-year low of 398,645 bags on November 20 before recovering to 461,829 bags by Wednesday. Robusta inventories similarly bottomed in December at one-year lows before rebounding to five-week highs. However, the recovery remains modest relative to overall market fundamentals.

Structural Market Headwinds from Trade and Import Dynamics

U.S. coffee inventories remain constrained, partly reflecting the impact of tariff policies on Brazilian imports. While tariffs have been reduced, the damage persisted through August-October when duties were fully in effect—U.S. imports of Brazilian coffee during this period collapsed 52% year-over-year, totaling just 983,970 bags. This inventory deficit has not yet fully recovered, maintaining pressure on U.S. market pricing.

Global Trade and End-Season Assessments

Broader trade data underscores mounting supply concerns. The International Coffee Organization reported on November 7 that worldwide coffee exports for the current marketing year (October to September) declined marginally by 0.3% year-over-year to 138.658 million bags—suggesting that export growth has stalled despite production expectations.

Looking ahead to 2025/26, ending stocks are forecasted to contract 5.4% to 20.148 million bags from 21.307 million bags in 2024/25, signaling tightening conditions despite production abundance. This paradox reflects how supply concentration and regional imbalances continue shaping market structure even as global production reaches record levels.

The confluence of production forecasts, weakening robusta coffee futures demand, strong dollar positioning, and improving Brazilian weather conditions have created a near-term downside bias, though ending inventory projections suggest a more balanced supply environment developing through 2026.