Dollar Rally and Supply Shocks Press Coffee Prices Lower

Coffee prices delivered a mixed performance this week as they reversed earlier gains amid a stronger US dollar and mounting supply-chain concerns. March arabica coffee futures closed down 1.95 points (-0.55%), while March robusta coffee contracts edged up 62 points (+1.57%). The broader commodity complex saw coffee rally to two-week highs mid-session, but the advance faltered as the dollar index surged to a one-week peak, triggering forced liquidation in coffee futures positions. This dynamic underscores how coffee prices remain tightly coupled to currency movements—a stronger greenback typically pressures dollar-denominated commodities as they become less attractive to international buyers.

Drought and Flooding Threaten Global Supply Chain

Coffee prices entered the week with underlying support from persistent concerns about production disruptions in the world’s two largest arabica and robusta-producing regions. Brazil, the globe’s top arabica producer, faces a critical dry spell in its heartland. Somar Meteorologia reported that Minas Gerais, Brazil’s primary arabica coffee-growing belt, received only 11.1 mm of rainfall during the week ending December 26—a shortfall of 83% below historical averages. This drought risk has kept coffee prices anchored, as any significant damage to Brazil’s flowering cycle could constrain supplies for years.

Indonesia, the world’s third-largest robusta coffee producer, grapples with a different crisis: widespread flooding that threatens to reduce coffee exports by as much as 15% in the 2025-26 production season, according to the Association of Indonesian Coffee Exporters and Industry. The deluge has impacted roughly one-third of Indonesia’s arabica coffee farmland in northern Sumatra, though robusta crops have experienced less damage. These regional supply shocks provide structural support to coffee prices despite near-term selling pressure.

Inventory Dynamics and the Tariff Aftershock

Contracting inventory levels continue to underpin the coffee price structure. ICE-monitored arabica stocks plummeted to a 1.75-year low of 398,645 bags on November 20, though they partially recovered to 456,477 bags by mid-February. Similarly, ICE robusta coffee inventories dipped to a one-year low of 4,012 lots in December, rebounding slightly to 4,278 lots in recent weeks. Tight warehouse positions historically support prices during periods of supply uncertainty.

The US tariff environment has added another wrinkle to coffee prices and demand patterns. American importers sharply reduced Brazilian coffee purchases when Trump administration tariffs were in effect, with US imports from August through October declining 52% year-over-year to 983,970 bags. Although those tariffs have since been eliminated, US coffee inventories remain lean, suggesting that full restocking could support coffee prices going forward.

Production Forecasts Paint a Mixed Picture

The coffee price outlook hinges on competing supply narratives. Brazil’s crop forecasting agency, Conab, raised its 2025 production estimate by 2.4% to 56.54 million bags in December, painting a more optimistic supply picture than earlier projections. However, that headline number masks underlying arabica weakness—global arabica production is expected to decline 4.7% to 95.515 million bags for 2025-26, while robusta coffee production climbs 10.9% to 83.333 million bags, according to the USDA Foreign Agriculture Service.

Vietnam, the world’s largest robusta coffee producer, is driving much of this robusta expansion. Vietnam’s National Statistics Office reported that November coffee exports jumped 39% year-over-year to 88,000 metric tons, with January-through-November exports up 14.8% year-over-year to 1.398 million metric tons. The USDA projects Vietnam’s 2025-26 coffee output will rise 6.2% to a four-year high of 30.8 million bags. The Vietnam Coffee and Cocoa Association (Vicofa) suggested production could be 10% higher than the previous season if weather cooperates. This torrent of Vietnamese robusta supplies weighs on robusta coffee prices and constrains any upside in arabica.

Global Stockpiles and Long-Term Market Structure

The International Coffee Organization reported that global coffee exports in the current marketing year (October-September) fell 0.3% year-over-year to 138.658 million bags, suggesting tight global supply dynamics. However, looking ahead, the USDA Foreign Agriculture Service projects world coffee production will climb 2.0% to a record 178.848 million bags in 2025-26. Ending stocks are forecast to contract 5.4% to 20.148 million bags, down from 21.307 million bags the prior year, indicating structural support for coffee prices over the medium term.

Coffee prices face near-term headwinds from dollar strength and abundant robusta supplies, yet retain support from arabica production concerns and lean inventories. The divergence between tight arabica and abundant robusta supplies will likely remain a defining feature of coffee price dynamics in the coming months.