Global Supply Shifts and Currency Moves Shape Arabica Market Direction

The arabica coffee market is navigating competing pressures this week, with March contracts posting modest gains of +0.15 points (+0.04%), while January robusta futures declined -15 points (-0.34%) to touch a 1.5-week low. The divergence between these two major coffee varieties reflects the complex interplay of production forecasts, currency dynamics, and international trade policy reshaping global commodity flows.

Currency Strength and Export Dynamics Lift Arabica

Brazilian real appreciation has become a critical factor supporting arabica valuations. The USD/BRL exchange rate recently hit a 2-week peak against the dollar, creating headwinds for Brazilian exporters contemplating new sales. This currency appreciation effectively raises production costs for coffee farmers when converting export revenues back to local currency, discouraging aggressive selling at current price levels.

The tariff environment has accelerated changes in procurement patterns. American importers have significantly scaled back purchases of Brazilian coffee following the implementation of new duties on Brazilian coffee shipments. Data from August through October shows US coffee imports from Brazil contracted by 52% year-over-year, falling to 983,970 bags during the period when tariffs took effect. This reduction has tightened American coffee supplies, particularly notable given that approximately one-third of US unroasted coffee originates from Brazil. ICE arabica inventory levels have compressed sharply, declining to a 1.75-year low of 398,645 bags on November 20, reflecting reduced inbound flows from both tariff impacts and diminished export appetite.

Precipitation Deficits and Crop Uncertainties

Weather conditions in key production zones are adding support to arabica valuations. Minas Gerais, Brazil’s primary arabica-growing region, experienced a notably drier week ended November 28, with only 20.4 mm of precipitation—roughly 39% of the historical average. This moisture deficit raises questions about soil water availability heading into critical growth phases.

On the supply projection front, Brazilian forecasters have shifted their outlook. Conab reduced its 2025 arabica estimate by 4.9% in September, trimming the forecast to 35.2 million bags from a prior 37.0 million bag projection. However, looking ahead, StoneX issued a more bullish supply projection on November 19, forecasting Brazil’s 2026/27 production will climb 29% year-over-year to 70.7 million bags, with arabica accounting for 47.2 million bags. This longer-term abundance is weighing on sentiment despite near-term tightness.

Vietnam’s Robust Output Pressures Robusta

Vietnamese robusta supplies are expanding rapidly, undermining price support for this variety. The Vietnam Coffee and Cocoa Association chairman reported that exports remain on track to accelerate, with 10% of the current robusta harvest already completed. Dry weather forecasts for Vietnam suggest harvesting can pick up pace this month.

Official statistics underscore the production momentum: Vietnam’s January through October 2025 coffee exports reached 1.31 million metric tons, representing a 13.4% year-over-year increase. Looking forward, Vietnam’s 2025/26 coffee output is projected to reach 1.76 million metric tons (29.4 million bags), marking a 4-year high and a 6% gain from the prior crop year. The Vietnam Coffee and Cocoa Association indicated output could be 10% higher than the previous year if favorable weather persists. As the world’s dominant robusta producer, Vietnam’s supply expansion directly pressures robusta pricing, which has fallen to an 11-month low of 4,115 lots in ICE-monitored inventories.

Policy and Global Supply Considerations

A significant policy development is weighing on long-term price dynamics. The European Parliament approved a 1-year delay to the EU Deforestation Regulation (EUDR) last Wednesday, postponing implementation that would have restricted coffee imports from regions with active deforestation. The extended timeline allows EU member states to continue sourcing agricultural products from deforestation-prone areas in Africa, Indonesia, and South America, keeping global coffee availability ample.

From a broader supply perspective, the International Coffee Organization reported that global coffee exports for the October-September marketing year declined modestly by 0.3% year-over-year to 138.658 million bags, suggesting relatively balanced global market conditions at present.

Medium-Term Production Trajectory

The USDA’s Foreign Agriculture Service projects that 2025/26 world coffee production will expand by 2.5% year-over-year to a record 178.68 million bags. This forecast includes a declining arabica component of 97.022 million bags (down 1.7%) offset by a robust robusta expansion to 81.658 million bags (up 7.9%). For Brazil specifically, FAS anticipates 2025/26 output will inch up 0.5% to 65 million bags, while Vietnam is expected to contribute 31 million bags, a 6.9% increase and 4-year peak. Ending stocks for 2025/26 are projected to reach 22.819 million bags, up 4.9% from the prior year’s 21.752 million bags, signaling gradually easing supply constraints through the season.

The arabica market currently reflects tension between near-term inventory tightness driven by tariff-related import disruptions and currency-related export reluctance, versus lengthening shadows of abundant production capacity coming online in subsequent years. Robusta faces more immediate headwinds from accelerating Vietnamese harvests and favorable growing conditions.