Global Coffee Supply Surge Outweighs Drought Concerns, Pressuring Market Prices

Vietnam’s Export Boom and Brazilian Production Surge Create Headwinds

The coffee market is experiencing significant headwinds as surging global supply prospects overshadow weather-related production constraints. According to Barchart’s commodity analysis, March arabica coffee futures (KCH26) declined 3.41% today, while March ICE robusta coffee (RMH26) fell 1.02%, reflecting broader bearish sentiment driven by ample supply expectations rather than immediate scarcity.

Vietnam, the world’s dominant robusta producer, has emerged as a key price pressure point. The country’s coffee exports for 2025 have surged 17.5% year-over-year to 1.58 million metric tons, signaling robust production capacity. Looking ahead to 2025/26, Vietnam’s robusta output is projected to climb 6.2% to 30.8 million bags—a four-year high—with the Vietnam Coffee and Cocoa Association anticipating potential 10% growth if weather remains favorable.

Brazilian Arabica Production Rebounds Despite Earlier Drought

While rainfall concerns eased this week after central Brazil received forecasted precipitation, the underlying supply picture remains bullish for producers. Brazil’s crop forecasting agency Conab increased its 2025 harvest estimate by 2.4% to 56.54 million bags in December, though USDA projections suggest a 3.1% decline to 63 million bags for 2025/26. This discrepancy reflects evolving weather conditions and methodological differences between forecasters.

Earlier drought conditions in Minas Gerais—Brazil’s primary arabica region—had temporarily lifted prices. The region received only 47.9 mm of rain in the week ending January 2, just 67% of historical averages. However, this short-term supply concern has been overwhelmed by longer-term production growth expectations.

Currency and Inventory Dynamics Add Complexity

A strengthening U.S. dollar, reaching four-week highs, has amplified downward commodity pressure. Additionally, while ICE-tracked arabica inventory fell to a 1.75-year low of 398,645 bags in November, it rebounded to 461,829 bags by Wednesday, suggesting stabilizing supply conditions.

U.S. import dynamics remain constrained due to prior tariff impacts. Brazilian coffee imports into the U.S. fell 52% year-over-year between August and October during peak tariff periods, totaling just 983,970 bags. Though tariffs have been reduced, American coffee inventories remain limited, providing modest support to prices.

Global Outlook: Record Production Forecasts Weigh on Market Sentiment

The International Coffee Organization reported that global coffee exports declined 0.3% year-over-year in the current marketing year to 138.658 million bags. However, USDA projections paint a bullish supply picture: global coffee production for 2025/26 is expected to reach a record 178.848 million bags, a 2% increase year-over-year.

This record includes divergent regional trends—arabica output is projected to drop 4.7% to 95.515 million bags while robusta production surges 10.9% to 83.333 million bags. The robusta rebound, driven primarily by Vietnam’s expansion, accounts for much of the market’s bearish pressure. Ending stocks for 2025/26 are forecast to decline 5.4% to 20.148 million bags from 21.307 million in 2024/25, indicating that despite record production, inventory pressure remains moderately supportive.

The convergence of Vietnamese export momentum, Brazilian production recovery, and currency headwinds creates a challenging price environment for coffee producers, even as some structural supply constraints persist.