Arabica Coffee Strengthens on Brazil's Favorable Weather Outlook and Currency Rally

March arabica coffee futures showed resilience on Thursday, advancing modestly after a sharp recovery in the Brazilian real to a 2.25-month high against the dollar. The stronger currency sparked short-covering activity among traders holding bearish positions, reversing early losses in arabica contracts. In contrast, March robusta coffee declined 0.52 cents, or 1.28%, reflecting divergent market forces between the two primary coffee varieties.

The rebound in arabica prices occurred despite initial selling pressure from rain forecasts across Brazil’s coffee belt. However, the fundamental picture improved as the stronger real makes Brazilian coffee exports less attractive from a currency perspective, reducing supply pressure and encouraging short covering. This dynamic underscores how currency movements can override near-term weather concerns in commodity futures markets.

Brazil’s Below-Average Rainfall Supports Arabica Prices

One of the most supportive factors for arabica coffee prices emerges from Brazil’s moisture deficit in key growing regions. Somar Meteorologia reported that Minas Gerais, which accounts for the largest share of Brazil’s arabica production, received only 33.9 millimeters of rain during the week ending January 16—just 53% of the historical average. This below-normal precipitation bolsters price support despite forecasts for rain distribution throughout the week.

The Weather Channel’s weekly showers forecast for Minas Gerais had initially weighed on prices, but the cumulative rainfall data suggests market concerns about moisture adequacy remain valid. Reduced water availability during critical growth phases typically limits yield potential and supply expansion.

Inventory Rebounds Create Mixed Signals

ICE-monitored inventory levels delivered contradictory messages for arabica coffee traders. Arabica stocks fell to a 1.75-year low of 398,645 bags on November 20 but subsequently recovered to 461,829 bags as of last Wednesday—a 2.5-month peak. The inventory rebound signals ample near-term supply availability, exerting downward price pressure despite tighter conditions compared to historical norms.

Robusta coffee inventories followed a similar pattern, declining to a 1-year low of 4,012 lots on December 10 before rebounding to 4,532 lots by Thursday. Higher inventory readings typically undermine bullish price momentum, offsetting some of the supportive elements from production concerns.

Brazilian Export Weakness Limits Supply Growth

December export data from Cecafe, Brazil’s coffee exporters’ association, reinforced supply constraints in the world’s largest arabica-producing nation. Total Brazilian green coffee exports fell 18.4% to 2.86 million bags compared to the prior year. More significantly, arabica coffee exports specifically declined 10% year-over-year to 2.6 million bags, while robusta shipments plummeted 61% to just 222,147 bags.

The export contraction reflects both domestic demand strength and external supply limitations, supporting prices for arabica coffee in futures markets. Reduced Brazilian exports tighten the global supply picture, particularly for high-quality arabica grades.

Production Forecasts Point to Ample 2025/26 Supplies

Despite near-term supply concerns, longer-term production outlook suggests adequate availability ahead. Conab, Brazil’s crop forecasting agency, raised its 2025/26 production estimate by 2.4% to 56.54 million bags in December, up from a 55.20 million bag forecast issued in September. However, the USDA’s Foreign Agriculture Service (FAS) offered a more conservative view in December, projecting Brazil’s 2025/26 output at 63 million bags—representing a 3.1% year-over-year decline.

These contrasting estimates underscore uncertainty in production trends and supply availability. The divergence between Brazilian and U.S. forecasts could drive price volatility if planting conditions deteriorate or harvests underperform expectations.

Vietnam’s Robusta Surge Reshapes Market Balance

Vietnam, the world’s largest robusta coffee producer, reported January coffee exports jumped 17.5% year-over-year to 1.58 million metric tons. This export acceleration reflects robust production growth, with 2025/26 coffee output projected to climb 6% year-over-year to 1.76 million metric tons, or 29 million bags—marking a 4-year high. The Vietnam Coffee and Cocoa Association (Vicofa) indicated that 2025/26 production could run 10% higher than the prior crop year if weather remains favorable.

Vietnam’s surging robusta supplies weigh on the specialty robusta market but have less direct impact on arabica coffee prices, given the distinct demand dynamics between the two varieties. However, increased total coffee availability globally can suppress overall price levels across both segments.

Global Supply Trends Present Mixed Outlook

The International Coffee Organization (ICO) reported in November that global coffee exports for the current marketing year fell 0.3% year-over-year to 138.658 million bags, suggesting relative stability in worldwide shipments. However, longer-term projections point toward expanding supplies.

FAS forecasted world coffee production in 2025/26 will increase 2.0% year-over-year to a record 178.848 million bags. This expansion masks significant divergence between varieties: arabica production is expected to decline 4.7% to 95.515 million bags due to weather challenges and crop stress in major origins, while robusta production surges 10.9% to 83.333 million bags, driven primarily by Vietnam’s robust output growth.

The global picture for arabica coffee remains relatively tight despite near-term inventory recoveries and ample production forecasts, reflecting structural undersupply in high-quality specialty grades. Ending stocks for 2025/26 are projected to fall 5.4% to 20.148 million bags from 21.307 million bags in 2024/25, providing modest price support.

Market Takeaway

Arabica coffee prices benefit from a confluence of factors including Brazil’s moisture deficit, a stronger real currency, reduced Brazilian exports, and near-term inventory tightness relative to longer-term averages. While global production forecasts suggest adequate supplies ahead, the immediate supply picture for arabica coffee remains constructive for traders positioned for sustained price support in the coming months.