Week 28: Coffee Market Summary
Tariffs, Drought, and a Sluggish Harvest: Brazil’s Coffee Market Faces Pressure Despite USDA's Modest Production Forecast.
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Brazil:
Brazil, being the world's largest producer of arabica coffee, experienced a significant price increase due to President Trump's tariff hikes on Brazilian goods. Despite a global rise in coffee supplies, the progress of Brazil’s coffee harvest this year is slower, with only 40% completed by July 4, compared to 52% at the same time last year. The USDA forecasts a slight increase in production to 65 million bags for the 2025/26 cycle. However, weather challenges, particularly below-average rainfall in Minas Gerais, continue to affect coffee prices. Arabica coffee inventories, monitored by ICE, have slightly decreased from a 5-month high, yet inventory pressures still negatively influence prices. In export metrics, there was a significant 36% decline in green coffee exports in May compared to the previous year.
Vietnam:
Vietnam, the leading global producer of robusta coffee, saw a sharp 20% reduction in its coffee production for the 2023/24 crop year due to severe drought, marking the smallest harvest in four years. In spite of these production setbacks, coffee exports from Vietnam rose by 4.1% during the first half of 2025. The forecast for the 2025/26 period suggests a recovery with a 6.9% increase in coffee output to 31 million bags. Nevertheless, robusta coffee prices have faced downward pressure due to increased global coffee supplies. However, a decline in robusta inventory levels has provided some temporary support for prices.
Global Context and Key Forecasts:
According to the USDA, global coffee production is anticipated to increase by 2.5% in the 2025/26 period, potentially reaching a record high of 178.68 million bags. Despite the overall production increase, arabica production is expected to decline by 1.7%, while robusta production might rise by 7.9%. Market dynamics are highlighted further by a forecasted global arabica deficit from Volcafe, marking the fifth consecutive year of deficits.
Vietnam's Future Outlook:
Looking ahead to the 2025/26 marketing year, Vietnam maintains an optimistic outlook on its coffee industry's future. The EU's classification of Vietnam's coffee exports as 'low risk' for deforestation enhances its European market competitiveness. However, it will be crucial for Vietnam to continuously comply with the EU Deforestation Regulation to keep this advantage. Expanding market focus beyond traditional strongholds to include influential consumer bases in Northeast Asia and more cost-effective markets like India could further benefit Vietnam’s coffee industry.