Brazil crop recovery to push coffee prices lower

Arabica coffee has been one of the strongest performers amongst agri commodities this year, with it up more than 25%. This strength has come as a result of poor weather weighing on output from key producer, Brazil, while tight stocks and US tariffs on Brazil have only provided further upside.

The strength seen in the Brazilian Real (BRL) this year would have provided further support to coffee prices. The BRL has moved from almost 6.2 against the US dollar at the start of the year, to below 5.3 at one stage. Looking forward, our FX team is expecting less movement in the BRL through 2026, so it should have less influence on coffee prices.

In addition, a further one-year delay in the EU Deforestation Regulation (EUDR) will also ease concerns over supply in 2026 for the European coffee market.

However, the supply outlook is set to improve, with stronger arabica output from Brazil, while Vietnam is also set to see a strong robusta crop. Admittedly, this is a concern for the market, with rainfall, particularly in key growing regions in Brazil, proving to be somewhat patchy.

Furthermore, some tariff relief for coffee imports into the US should see the US market becoming better supplied as buyers return to global markets to restock.

Better supply should improve stock levels, which have been trending lower consistently throughout the year. ICE-certified stocks have been down as much as 60% at various stages of this year. These tight stocks, combined with a tight market, have kept the arabica forward curve well backwardated. The backwardation in the curve should dissuade roasters from carrying large stocks.

However, with supply prospects set to improve, we should see inventories edge higher, which should put some downward pressure on prices. But the market may need more clarity on how the Brazilian 2026/27 harvest will play out before we see any significant weakness in prices.

US tariff policy has provided another level of uncertainty for the coffee market, as well as being another tailwind for arabica coffee prices. The Trump administration this year placed a 10% reciprocal tariff on imports, including coffee, while also imposing a further 40% tariff on imports from Brazil.

Brazil was the largest supplier of coffee to the US, making up around 32% of total US imports. So it is no surprise that the 50% tariff has seen these flows plummet. Brazilian coffee flows to the US fell by nearly 53% YoY in September 2025. This leaves total Brazilian coffee exports in the first nine months of 2025 down around 20% YoY.

However, we should start to see some normalisation in flows, following the US removing not just the reciprocal tariffs on coffee, but also the additional 40% tariff on Brazilian coffee.

This should take some pressure off the market in the medium to long term. However, it will likely take a while to feed through, with US buyers likely restocking after limiting purchases during the tariff period.

The 2025/26 Brazilian Arabica crop has been under pressure this year owing to periods of low and patchy rainfall, along with high temperatures. There have also been periods where cold fronts have raised concerns over potential frost impact.

These factors, combined with the fact that this season is the off-year of the biennial cycle for arabica in Brazil, mean that arabica production is estimated to fall 13% YoY to 38m bags, according to USDA numbers. However, the decline in output in arabica is expected to be partly offset by growth in robusta, where output is estimated to grow 19% YoY to 25m bags. Weather conditions in growing regions for robusta have been much more supportive for the crop. This sees overall Brazilian coffee output fall by 3% YoY to 63m bags.

For the 2026/27 Brazilian crop, concerns over supply continue to linger, with rainfall proving to be fairly erratic. The key growing regions, including Minas Gerais, have seen lower than usual rainfall more recently, which will raise some concerns over how next season’s crop will perform. The weather will remain crucial in the months ahead.

However, for now, it is still expected that we will see a strong recovery in arabica output. This will be partly because it will be an on-year for the crop when it comes to the biennial cycle, while the higher price environment in recent years has allowed farmers to invest more heavily in production. While there is plenty of risk, early estimates suggest Arabica output could grow to around 47m bags in 2026/27, up 24% YoY. Meanwhile, robusta production is expected to fall around 8% YoY to around 23m bags. This would see overall Brazilian coffee production growing 11% YoY to 70m bags.

Vietnam continues to see a recovery in robusta coffee production following the drought, which impacted the 2023/24 crop. The 2024/25 harvest saw production grow 5% YoY to 28m bags, while 2025 Vietnamese coffee exports are up almost 15% YoY over the first 11 months of 2025.

The outlook for the 2025/26 crop is also constructive, with suggestions that output could grow to more than 30m bags. However, we have had some heavy rainfall and flooding in Vietnam in recent months, which may have some negative impact on supply.

The relative strength seen in the arabica coffee market this year has seen the arabica-robusta spread widen, which should push the industry to blend larger volumes of robusta, which will help offset the higher costs of arabica. The ability to use/switch to cheaper robusta may help dampen the impact on overall coffee consumption from the higher prices, particularly seen in arabica.

However, it also takes quite some time for higher prices to be passed on to consumers. The UN’s Food and Agriculture Organisation (FAO) estimates that in the EU, a 1% rise in coffee prices translates to a 0.24% increase in retail prices after 19 months, while in the US, a similar increase takes 13 months to feed through. However, in the more recent price spike, it does appear prices are being passed onto consumers at a quicker pace than this.

And with coffee making up a tiny share of household spending, demand is generally quite inelastic to prices. In the EU, 2.5% of total spending on food and non-alcoholic beverages goes towards coffee. Out-of-home coffee consumption tends to be more elastic than at-home consumption.

In many commodity markets, higher prices help to resolve deficits through incentivising higher production and demand destruction. However, with coffee demand being less sensitive to price movements, this makes it more difficult for the market to resolve any tightness through consumption changes.