What's Driving the Surge in Coffee Futures? A Look at Brazilian Supply Dynamics and Market Mechanics

Coffee futures experienced notable gains on Tuesday, with March arabica climbing +14.50 points (+4.04%) to reach a 4-week peak, while March ICE robusta advanced +89 points (+2.27%). The rally reflects a confluence of supply and macroeconomic pressures reshaping global coffee markets.

Brazilian Weather Constraints Meet Currency Strength

The foundation of this week’s arabica strength lies squarely in Brazil, the world’s dominant arabica producer. Minas Gerais, Brazil’s heartland for arabica cultivation, received only 47.9 mm of rainfall in the week ending January 2—just 67% of historical norms according to Somar Meteorologia. This moisture deficit is tightening near-term supply expectations.

Compounding the supply concern is the Brazilian real’s recent muscle-building against the dollar. As of Tuesday, the currency reached a 1-month high, which paradoxically pressures local producers. A stronger real makes Brazilian coffee exports less attractive on international markets, effectively reducing selling incentives for producers and supporting prices through constrained supply flows.

Vietnam’s Robust Production Weighs on Robusta

The robusta story tells a different tale. Vietnam, commanding the world’s robusta coffee output, reported a striking acceleration in 2025 exports: shipments jumped +17.5% year-over-year to 1.58 million metric tons (MMT) according to the National Statistics Office. Looking ahead, Vietnam’s 2025/26 production is projected to climb +6% to 1.76 MMT—or 29.4 million bags—marking a 4-year high. The Vietnam Coffee and Cocoa Association noted that output could be 10% higher than the previous crop if favorable weather persists.

This abundance is tempering robusta’s upside, as rising supplies from Vietnam counterbalance the price support seen in arabica markets.

The Inventory Picture: Recovery After Recent Lows

ICE-monitored arabica inventories fell to a 1.75-year low of 398,645 bags on November 20, before recovering to 457,031 bags by Tuesday—a 2.5-month high. For robusta, stockpiles hit a 1-year low of 4,012 lots on December 10, then rebounded to 4,278 lots in late December. While inventories have recovered from recent troughs, these levels remain historically constrained, supporting the structural bid under prices.

Tariff Shifts Reshape US Import Patterns

American coffee buyers significantly curtailed Brazilian coffee purchases during the Trump tariff period (August-October), with purchases dropping 52% year-over-year to 983,970 bags. Though these tariffs have since been reduced, US coffee inventories remain tight, signaling potential demand resurgence as price equilibrium re-establishes and trade barriers ease.

Production Outlook: Brazilian Gains, But Global Increases Expected

Brazil’s crop forecasting agency Conab raised its 2025 production estimate by 2.4% to 56.54 million bags in December, suggesting ample domestic supply ahead. However, the USDA’s Foreign Agriculture Service projects Brazil’s 2025/26 output will actually decline -3.1% to 63 million bags—a contrasting signal worth monitoring.

On the global stage, the USDA forecasted world coffee production for 2025/26 will reach a record 178.848 million bags, up +2.0% year-over-year. This masks divergent trends: arabica output is expected to fall -4.7% to 95.515 million bags, while robusta climbs +10.9% to 83.333 million bags. The International Coffee Organization reported that current marketing year global exports declined -0.3% to 138.658 million bags, suggesting tighter flows despite larger projected harvests.

The Bottom Line: Competing Pressures

Coffee markets are navigating competing forces. Brazilian weather stress and currency dynamics are supporting arabica, while Vietnamese abundance is containing robusta. Inventory recovery from 1-year/1.75-year lows provides some breathing room, but forward production projections suggest the market is pricing in significant supply expansion. Traders monitoring this space should watch Brazilian rainfall patterns and currency movements as potential catalysts, while keeping tabs on Vietnamese harvest progress as the season unfolds.