Arabica Coffee Rally Reflects Supply Tightness Despite Robust Global Production Outlook

Mixed Performance in Coffee Futures Markets

Coffee futures markets delivered a split verdict on Thursday’s trading session. March arabica coffee contracts closed on an upbeat note, gaining +1.05% to settle higher, while January robusta contracts moved in the opposite direction with a -0.26% decline. This divergence underscores a fundamental shift in how traders are pricing the two major coffee varieties—a split driven by distinct supply dynamics across the world’s leading producing regions.

Brazil’s Export Decline Anchors Arabica Support

The arabica rally drew significant momentum from Brazil’s latest export performance. Cecafe, the Brazilian exporter association, disclosed that green coffee shipments from the world’s largest arabica producer tumbled by 27% year-over-year in November, dropping to just 3.3 million bags. This contraction immediately reverberated through futures markets, providing the technical lift that carried arabica higher.

Weather patterns across Brazil’s coffee belt have intensified concerns among traders. Minas Gerais, which accounts for the bulk of Brazil’s arabica output, experienced a severe rainfall deficit during the first week of December. The region received only 11 mm of precipitation—a mere 17% of long-term average levels. Somar Meteorologia’s assessment suggests below-normal water availability will persist, raising questions about the trajectory of coffee yields in the months ahead.

Inventory Compression Lends Price Support

Storage data from ICE exchanges tells a cautionary tale about immediate supply availability. Arabica warehouse stocks hit a 1.75-year nadir of 398,645 bags on November 20, before recovering slightly to 426,523 bags the following week. Robusta inventories proved even tighter, plunging to an 11.5-month low of 4,012 lots by mid-week. These compressed inventory levels leave little room for unexpected demand surges.

Conflicting Signals on Global Supply Picture

The longer-term outlook presents a more complicated narrative. Brazil’s crop forecasting authority, Conab, raised its 2025 production estimate by 2.4%, projecting a harvest of 56.54 million bags—above an earlier September forecast of 55.20 million bags. At the same time, the International Coffee Organization reported that global exports during the current marketing year (October-September cycle) contracted by 0.3% year-over-year to 138.658 million bags, suggesting that export availability remains constrained despite production growth.

Vietnam’s Robusta Surge Creates Headwind

Vietnam’s coffee exports present a stark contrast to Brazil’s shrinking shipments. The country’s November exports jumped 39% year-over-year to 88,000 MT, with year-to-date shipments climbing 14.8% to 1.398 million MT. Looking ahead, Vietnam is positioned for even greater production, with 2025/26 output projected to rise 6% to 1.76 million MT—a four-year peak. The Vietnam Coffee and Cocoa Association has suggested harvests could run 10% higher if weather cooperates.

This robusta expansion weighs heavily on robusta futures prices, keeping January contracts under pressure despite broader supply tightness. Vietnam dominates global robusta supply, and any production growth from Hanoi flows directly into export markets as a bearish influence.

Tariff Dynamics Reshape Purchasing Patterns

US import patterns have undergone a dramatic shift. During the period when tariffs on Brazilian coffee were in effect (August through October), American coffee purchases dropped 52% year-over-year to 983,970 bags. Although those tariffs have since been removed, US coffee inventory positions remain lean, constraining near-term buying appetite. This import weakness has inadvertently supported prices by reducing demand pressure.

Regulatory Delays Ease Supply Flow

The European Parliament’s November 26 decision to postpone the deforestation regulation (EUDR) for one year has lifted barriers to agricultural imports. The delayed implementation allows EU member states to continue accepting coffee, soybeans, and cocoa from regions experiencing deforestation in Africa, Indonesia, and South America. This regulatory reprieve effectively extends arabica’s accessible supply pool, though market participants have only partially priced this bearish development into positions.

The Outlook: Growth Tempered by Distribution Constraints

The USDA Foreign Agriculture Service painted a picture of rising production but shifting regional balances. Global coffee production in 2025/26 is forecast to grow 2.5% year-over-year to a record 178.68 million bags. However, within that aggregate, arabica is expected to contract 1.7% to 97.022 million bags while robusta surges 7.9% to 81.658 million bags. Brazil’s 2025/26 harvest is seen rising just 0.5% to 65 million bags—a modest uptick—while Vietnam’s crop accelerates 6.9% to a four-year high of 31 million bags.

Ending stocks for the 2025/26 season are projected to climb 4.9% to 22.819 million bags from 21.752 million bags in 2024/25. This suggests that despite production growth, coffee distribution networks face structural constraints that will continue to support prices in the near term, particularly for arabica varieties where supply remains more restricted than their robusta counterparts.