Coffee Futures Weekly Update

Market Overview

Weekly Price Action

Coffee markets navigated conflicting signals this week, ultimately rebounding +2.82% amid Indonesian flood damage and improved Brazilian rainfall. The week ending December 19 saw Minas Gerais receive 38.3mm of rainfall (76% of average), alleviating extreme drought concerns. However, widespread flooding in Indonesia's Northern Sumatra damaged approximately one-third of Arabica farms, with the Association of Indonesian Coffee Exporters and Industry projecting a potential 15% decline in 2025/26 season exports.

ICE certified inventories have steadily recovered from the November 20 low of 398k bags (1.75-year low) to reach 456k bags on December 25 (2-month high). Robusta inventories similarly recovered from the December 10 low of 4,012 lots (11.5-month low) to 4,278 lots on December 24-25. Despite the removal of US-Brazil tariffs, US inventories remain tight, as August-October Brazilian coffee purchases plummeted -52% y/y to 984k bags during the period when President Trump's tariffs were in effect.

Fundamental Analysis

Production Outlook: USDA 2025/26 Forecast

The December 19 USDA FAS semi-annual report projects 2025/26 global coffee production to increase +2.0% y/y to a record 178.85 million bags. Arabica production is forecast to decline -4.7% to 95.52 million bags, while Robusta is expected to surge +10.9% to 83.33 million bags.

The projected -5.4% decline in ending stocks from 21.31 million to 20.15 million bags suggests structural tightness will persist despite production growth. On December 4, Conab raised its 2025 Brazilian total production estimate by +2.4% to 56.54 million bags (from 55.20 million in September), though this remains below historical averages.

Indonesian Flood Impact

According to the chairman of the Association of Indonesian Coffee Exporters and Industry, widespread flooding in recent weeks damaged approximately one-third of Arabica coffee farms in Northern Sumatra. While Indonesia ranks as the world's third-largest Robusta producer, Northern Sumatra also cultivates some Arabica. The damage is projected to reduce total 2025/26 season exports by up to 15%, with Robusta-growing regions experiencing relatively less impact.

Brazilian Weather Trends

Somar Meteorologia reported on December 23 that Minas Gerais, Brazil's largest Arabica-growing region, received 38.3mm of rainfall during the week ending December 19, achieving 76% of the historical average. While improved from severe drought conditions, this still falls below average levels. Brazil is currently entering the critical flowering period for the 2025/26 season, making rainfall patterns over the next 1-2 months crucial determinants of production volume.

Vietnam Export Dynamics

Vietnam's General Statistics Office reported on December 5 that November coffee exports surged +39% y/y to 88,000 MT, with cumulative January-November exports rising +14.8% to 1.398 MMT. However, conflicting data from Trading Economics indicates January-November total exports declined -14.3% to 1.2 MMT. This discrepancy reflects farmer retention strategies limiting actual exportable volumes despite high prices.

Vietnam's 2024 coffee export prices reached record highs, averaging 5,450 USD/ton in December (-2.3% from November but +88.8% y/y). The annual average export price reached 4,158 USD/ton, up +59.1% from 2023. USDA projects Vietnam's 2025/26 production at 30.8 million bags (+6.2% y/y, 4-year high), though continued farmer retention may limit actual market supply.

Currency Developments

USD/BRL exchange rates reached a 2024 peak of 6.73 on December 25 before settling around 5.55. The Brazilian Real continues to weaken amid political uncertainty and fiscal concerns. Unlike historical patterns, Real weakness is not translating to immediate export volume increases due to improved producer financial conditions. Instead, producers are strategically retaining inventory, awaiting further price appreciation.

Market Outlook & Risk Assessment

Near-Term Outlook (1 Month)

Indonesian flood damage and persistently tight ICE inventories provide downside support, while improved Brazilian rainfall and Vietnam's production growth forecast cap upside potential. We anticipate consolidation within a 340-360 cent range. The critical variable remains Brazil's January-February rainfall patterns. Continued favorable rainfall could strengthen 2026/27 production outlooks and pressure prices lower, while a sudden rainfall deficit could trigger a sharp rebound scenario.

Medium-Term Outlook (3 Months)

USDA's -5.4% ending stocks forecast indicates persistent structural tightness. Vietnam's production increase (+6.2%) will offset Brazil's decline (-3.1%), maintaining delicate global supply-demand balance. Indonesia's 15% export reduction, while limited in scope, may support Arabica premiums specifically.

Key Risk Factors

Upside Risks: Sudden Brazilian rainfall deficit in January-February causing flowering failure and sharp 2026/27 production downgrades; additional Indonesian weather events spreading to Robusta regions; prolonged Vietnamese farmer retention intensifying actual supply tightness.

Downside Risks: Sustained Brazilian rainfall bolstering 2026/27 bumper crop expectations; large-scale Vietnamese farmer selling; USD/BRL Real strengthening increasing Brazilian export pressure; global demand decline from economic slowdown.

Base Case Scenario

Markets are currently seeking equilibrium between improved supply outlooks and structural tightness. Near-term consolidation around 350 cents appears likely, with directional clarity dependent on Brazil's flowering period (January-February) rainfall patterns. Structurally, USDA's projected ending stocks decline provides downside support, while Indonesian damage and Vietnamese retention offer additional bullish reinforcement.

Key News Briefing