Coffee Prices Decline Amid Rising Inventories and Demand Woes

Coffee prices plummet as robusta and arabica hit lows with surging inventories and forecasts of increased production, impacting major brands.

Date: 23-05-2025

AI Rating: 5

**Market Overview:** Coffee prices are taking a hit, with both arabica and robusta coffee seeing significant declines. The factors driving this downtrend include rising inventories, forecasts for increased production in major coffee-producing countries, and bearish demand expectations from key global importers.

**Earnings Impact:** Companies like Starbucks, Hershey, and Mondelez International, which rely heavily on coffee for their products, may see their profit margins pressured due to potential increases in coffee prices caused by tariffs. The anticipated tariff might limit sales volumes, suggesting potential contractions in revenues and net income from these companies.

**Production Dynamics:** Brazil and Vietnam, the world's largest producers of arabica and robusta respectively, are projected to see notable increases in their coffee productions over the next marketing years. For instance, Brazil's production for 2025/26 is forecasted to climb by 0.5% to 65 million bags. This anticipated production surge is likely to saturate the market, keeping final prices low and impacting profitability across the supply chain.

**Stocks Evaluation:** The report indicates that coffee inventories have reached significant highs, suggesting an oversupply that can lead to lower market prices. ICE-monitored inventories for robusta coffee rose to an 8-month high, contributing to the bearish sentiment in the market.

**Weather Concerns:** On a somewhat brighter note, concerns over potentially smaller coffee crops due to adverse weather conditions could provide upward pressure on prices if crop yields fail to meet forecasts. However, with Brazil’s largest coffee-growing area receiving much less rain than historical averages, the downside risk appears limited, potentially leaving room for eventual price recovery.

**Conclusion:** Overall, with the current trends indicating oversupply and adverse economic conditions affecting demand, coffee prices are likely to remain under pressure in the near term. Investors in commodities and related equities should monitor these dynamics closely, as shifts in weather or unexpected market demand could lead to significant price volatility.

Stocks: SBUX HSY MDLZ