Brazilian Coffee Drought Triggers Rally as Global Supplies Tighten

The Coffee Market Split: Arabica Climbing, Robusta Struggling

March arabica coffee contracts surged +7.10 points (+1.92%) on Monday, while January robusta futures declined -53 points (-1.18%). The divergence reflects a tale of two coffee markets, each facing distinct supply pressures that are reshaping price dynamics.

Dry Spell in Brazil’s Coffee Belt Sparks Bullish Sentiment

The rally in arabica coffee stems from drying conditions in Brazil’s largest growing region. Somar Meteorologia reported that Minas Gerais received just 26.4 mm of rain during the week ending November 21—only 49% of its historical average. This moisture deficit has traders nervous about crop prospects, especially as the 2026/27 season approaches.

The timing matters. Last Friday, arabica had tumbled to a seven-week low after President Trump signed an executive order exempting Brazilian food products from tariffs, including the 40% levy on Brazilian coffee. Monday’s bounce suggests the drought concerns are now outweighing the tariff relief narrative.

How Tariffs Reshaped Coffee Flows

The tariff saga disrupted the usual import patterns. US purchases of Brazilian coffee from August through October plummeted 52% year-over-year to 983,970 bags as American buyers canceled orders. This scissors-like effect—tariffs cutting off supply on one end while demand persists on the other—has drained ICE arabica inventories to a 1.75-year low of 398,645 bags as of last Thursday.

Similarly, ICE robusta stocks hit a 4.5-month low of 5,370 lots on Monday. About one-third of America’s unroasted coffee originates from Brazil, so the tariff shock created a genuine tightening in available supplies.

Vietnam’s Weather Reprieve Pressures Robusta

Robusta coffee faced headwinds from Vietnam, the world’s largest robusta producer. Heavy rains had delayed harvesting in Dak Lak province, Vietnam’s premier coffee zone. However, drier forecasts ahead will accelerate harvesting—potentially flooding the market with fresh supply.

Vietnam’s coffee export data underscores the supply momentum. From January through October 2025, exports climbed 13.4% year-over-year to 1.31 million metric tons. The 2025/26 crop is projected to reach 1.76 million metric tons (29.4 million bags), a four-year high and a 6% increase. The Vietnam Coffee and Cocoa Association further suggested output could climb 10% above the prior year if weather cooperates—a bearish signal for robusta prices.

Global Coffee Production Forecasts: Growth Ahead

The International Coffee Organization reported on November 7 that global coffee exports for the current marketing year (October-September) fell 0.3% year-over-year to 138.658 million bags—a sign of tightness in the near term.

Looking ahead, however, production growth beckons. The USDA’s Foreign Agriculture Service projected in June that world coffee production in 2025/26 will rise 2.5% year-over-year to a record 178.68 million bags. Within that total, arabica production will dip 1.7% to 97.022 million bags, while robusta output climbs 7.9% to 81.658 million bags.

Brazil itself presents mixed signals. Conab, Brazil’s crop forecasting agency, cut its 2025 arabica estimate in September by 4.9% to 35.2 million bags (down from a May forecast of 37.0 million). Total Brazilian coffee production dropped 0.9% to 55.2 million bags. Yet StoneX forecasted Wednesday that the 2026/27 crop will rebound sharply, reaching 70.7 million bags total, with arabica production jumping 29% year-over-year to 47.2 million bags.

FAS expects Brazil’s 2025/26 output to rise modestly by 0.5% to 65 million bags, while Vietnam’s crop climbs 6.9% to 31 million bags, a four-year peak.

The Inventory Wildcard

Global ending stocks for 2025/26 are projected to grow 4.9% to 22.819 million bags from 21.752 million in 2024/25. This inventory cushion could ultimately cap upside for arabica prices, even as Brazilian drought concerns linger in the near term.

The coffee market remains a tug-of-war between tightening near-term supplies and growing production on the horizon. Arabica traders are pricing in drought risk; robusta traders are bracing for the harvest flood ahead.