Brazil's Coffee Dry Spell Lifts Arabica While Vietnam's Surge Weighs on Robusta

The coffee market painted a divergent picture on Monday, with arabica benefiting from weather concerns in Brazil while robusta struggled against rising supply from Vietnam. March arabica futures climbed +2.05 (+0.57%), marking gains as drought conditions tightened the outlook, whereas March robusta contracts declined -36 (-0.91%) to touch a one-week low.

Supply Dynamics Driving Price Divergence

Brazil’s coffee-growing heartland is experiencing below-normal precipitation that’s catching market attention. Minas Gerais, Brazil’s premier arabica region and critical to global supplies, recorded only 47.9 mm of rainfall in the week ending January 2—a mere 67% of historical norms. This rainfall deficit is bolstering arabica sentiment and comes as traders process broader supply implications.

On the robusta front, Vietnam’s coffee sector is flooding the market with new shipments. Vietnam’s 2025 coffee exports surged +17.5% year-over-year to 1.58 MMT, undercutting prices as the world’s largest robusta producer demonstrates ample availability. The contrast is stark: while arabica faces production headwinds in Brazil, robusta abundance from Vietnam is creating bearish pressure.

Currency and Tariff Effects Reshape Demand

The Brazilian real’s strength against the dollar is playing an underappreciated role. The currency reached a three-week high on Monday, making Brazilian coffee exports less attractive from a pricing perspective—a factor that’s been supportive for arabica values by discouraging farmers’ rush to sell.

US import dynamics have also shifted following tariff adjustments. During the period when Trump-era tariffs were active (August-October), American coffee purchases from Brazil plummeted 52% to 983,970 bags compared to the same timeframe last year. While tariffs have since been reduced, US coffee stocks remain constrained, suggesting demand may not immediately rebound.

Inventory Levels and Production Forecasts

ICE warehouse data shows mixed signals across the complex. Arabica inventories hit a 1.75-year low of 398,645 bags on November 20 before recovering to 456,477 bags by December 24. Robusta stocks similarly bounced from a one-year low of 4,012 lots on December 10 to 4,278 lots by late December.

Production forecasts paint a complex picture for the market’s intermediate outlook. Brazil’s crop agency Conab raised its 2025 coffee production estimate to 56.54 million bags—a 2.4% increase from September projections. Meanwhile, the USDA’s Foreign Agriculture Service projects global coffee production will reach a record 178.848 million bags in 2025/26, with arabica output contracting 4.7% but robusta expanding 10.9%.

Market Crosscurrents and the Year Ahead

Vietnam’s coffee trajectory suggests sustained pressure on robusta pricing. The nation’s 2025/26 production is expected to climb 6% year-over-year to 1.76 MMT (29.4 million bags), potentially reaching a four-year high if weather cooperates. Brazil’s situation is more nuanced: while 2024/25 production is robust at 56.54 million bags, FAS forecasts a 3.1% decline to 63 million bags in 2025/26.

Global coffee exports fell modestly by 0.3% year-over-year to 138.658 million bags in the current marketing year, suggesting stability despite supply shifts. However, ending stocks are projected to fall 5.4% to 20.148 million bags, potentially supporting prices in the intermediate term.

The arabica-robusta divergence reflects fundamental supply-demand dynamics: Brazil’s rainfall concerns and currency strength are lifting arabica, while Vietnam’s expanding harvests are pulling robusta lower. Traders monitoring this market when Brazil’s monsoon season reaches its critical phase will find critical levels shaping the next leg of the coffee complex.