Coffee Rally Intensifies as Multiple Supply Shocks Hit Global Markets

March Arabica and Robusta Surge on Growing Crop Concerns

The coffee market caught fire on Monday, with March arabica futures climbing +1.90 points (+0.54%) and March robusta climbing +26 points (+0.67%), reaching 1.5-week highs. The rally reflects mounting anxiety across the globe’s major growing regions—particularly Brazil in March, where weather patterns are triggering fresh concerns about the 2025 harvest.

Brazil Faces Moisture Crisis as Rainfall Plummets

The trouble started in Brazil’s heartland. Minas Gerais, the country’s largest arabica-growing region, saw rainfall drop to just 11.1 mm during the week ended December 26—a stark 17% below historical averages. This drought stress comes at a critical growth phase and is reshaping price expectations for the season ahead.

Brazil in March conditions typically set the tone for the entire marketing year, and the current deficit has traders scrambling. The pressure isn’t limited to Brazil’s borders, though.

Indonesia’s Flooding Crisis Compounds Global Supply Worries

On the other side of the world, Indonesia is battling a different crisis: devastating floods. The Association of Indonesian Coffee Exporters and Industry warned that flooding could slash the country’s 2025-26 coffee exports by as much as 15%. Northern Sumatra’s arabica farms bore the brunt—roughly one-third of them were affected in recent weeks—though robusta crops proved more resilient. As the world’s third-largest robusta producer, Indonesia’s struggles ripple through global markets.

Inventory Tightness Adds Fuel to the Rally

Exchange inventories tell a supportive story. ICE arabica stockpiles hit a 1.75-year low of 398,645 bags on November 20, then recovered somewhat to 456,477 bags—still tight by recent standards. Robusta inventories fell to 1-year lows of 4,012 lots before bouncing to 4,278 lots, signaling persistent supply pressure.

US inventory dynamics add another layer. American coffee buyers had largely abandoned Brazilian purchases during 2024 due to tariffs, with US imports from Brazil dropping 52% from August-October. Even though tariffs have since eased, US coffee stocks remain lean, limiting buyers’ purchasing power.

Vietnam’s Boom Threatens a Price Floor

The bearish counterweight comes from Vietnam, the world’s largest robusta producer. Vietnamese coffee exports jumped 39% year-over-year to 88,000 MT in November alone. For January-November, exports climbed 14.8% to 1.398 million MT. Vietnam’s 2025-26 coffee production is projected to surge 6% to 1.76 million MT (29.4 million bags)—a 4-year high—with the Vietnam Coffee and Cocoa Association suggesting output could be 10% higher if weather cooperates.

This flood of Vietnamese robusta is capping upside potential, especially for the weaker arabica cousin.

Global Production Forecasts Paint a Mixed Picture

The International Coffee Organization reported on November 7 that global coffee exports fell 0.3% year-over-year to 138.658 million bags, suggesting some softness. However, the USDA’s Foreign Agriculture Service painted a different picture on December 18, projecting that world coffee production will rise 2.0% in 2025-26 to a record 178.848 million bags.

The breakdown is telling: arabica production is expected to fall 4.7% to 95.515 million bags, while robusta production will surge 10.9% to 83.333 million bags. Brazil’s output is forecast to decline 3.1% to 63 million bags, while Vietnam’s production is set to jump 6.2% to 30.8 million bags.

Despite these large global harvests, ending stocks are projected to tighten by 5.4% to 20.148 million bags, down from 21.307 million bags in the prior year.

The Verdict: Multiple Headwinds Keep Coffee Elevated

Coffee prices are caught between conflicting currents. Drought in Brazil in March and flooding in Indonesia are creating near-term supply anxiety. Historically low exchange inventories provide price support. Yet massive expected gains in Vietnamese and global robusta output loom as the season progresses, threatening to cap rallies.

For now, weather-driven supply shocks are winning, but sustained price strength will depend on whether dry conditions persist in Brazil and whether Indonesian floods delay coffee shipments into the new marketing year.