Brazilian Weather Crunch Drives Arabica Coffee to 4-Week Heights Amid Currency Tailwinds

Arabica coffee surged dramatically today, climbing +3.70% to reach a monthly peak, while robusta contracts gained +1.61% in a broad rally across coffee markets. The price strength reflects a confluence of bullish factors centered on production risks and currency dynamics in the world’s largest coffee-producing regions.

Supply Squeeze in Brazil Fuels Arabica Rally

The primary catalyst stems from Brazil’s coffee belt facing dry conditions. Minas Gerais, which accounts for the majority of Brazil’s arabica output, recorded only 47.9mm of weekly rainfall—approximately 67% of its historical norm. This moisture deficit threatens near-term crop development and has reinvigorated bullish sentiment in arabica contracts.

Adding fuel to the fire, the Brazilian real has strengthened to a one-month high versus the dollar. A stronger domestic currency typically discourages coffee exporters from selling overseas, as revenues convert to fewer reals. This dynamic effectively constrains near-term supply flows from the world’s largest arabica producer, further supporting prices.

Global Inventory Dynamics Cut Both Ways

Coffee stockpiles monitored by ICE present a mixed picture. Arabica holdings have stabilized around 456,477 bags following a dip to 398,645 bags in mid-November—marking the lowest level in 1.75 years. Robusta inventories similarly bottomed before recovering, suggesting that physical supply remains critically tight across both varieties.

However, this inventory support faces headwinds from expanding production forecasts. Brazil’s crop agency Conab raised its 2025 production estimate to 56.54 million bags, a 2.4% increase from prior estimates. Meanwhile, Vietnam—the world’s largest robusta producer—is ramping output, with 2025 coffee exports jumping +17.5% year-over-year to 1.58 million metric tons.

Demand Headwinds and the US Tariff Factor

American coffee consumption patterns have undergone a notable shift. When US tariffs on Brazilian imports peaked under recent policy, US purchases of Brazilian coffee plummeted 52% year-over-year during the August-October period, falling to roughly 984,000 bags. Though tariffs have since been reduced, US coffee stocks remain constrained, limiting near-term import acceleration even as duties ease.

Vietnam’s production surge presents another supply-side wildcard. The country’s output is projected to reach 30.8 million bags in 2025/26, representing a 6.2% jump and a four-year high. Vicofa, Vietnam’s coffee industry association, has indicated potential for even stronger output if favorable weather persists.

Longer-Term Price Pressures

The USDA’s Foreign Agriculture Service painted a nuanced global picture for 2025/26. Total world coffee production is expected to reach a record 178.848 million bags, up 2.0% year-over-year. Within that total, arabica output faces headwinds, declining -4.7% to 95.515 million bags, while robusta production surges +10.9% to 83.333 million bags.

Ending stocks are forecast to tighten, dropping -5.4% to 20.148 million bags from 21.307 million bags in the prior year. The International Coffee Organization noted that global coffee exports for the current marketing year fell -0.3% year-over-year to 138.658 million bags—a sign that supply acceleration has not kept pace with baseline export flow expectations.

The arabica coffee market’s current strength balances acute near-term supply risks against longer-term production headroom. Brazil’s dry spell and currency dynamics provide near-term support, but expanding Vietnamese output and improved Brazilian harvests project eventual supply normalization. Price direction ultimately hinges on whether weather pressures in Brazil persist and demand recovers from recent tariff-driven weakness.