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Coffee Prices Decline Amid Trade Tariffs and Supply Concerns

Coffee prices continue to slide as President Trump's tariffs create risk-off sentiment, raising worries about demand and supply. Reduced production and tightening inventories add complexity for investors in this volatile sector.

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AI Rating:   5

Market Context
Coffee prices have been under pressure due to various factors including tariffs imposed by President Trump, which have fostered a risk-off sentiment in markets and raised fears about consumer demand. As a result, both arabica and robusta coffee prices are seeing downward momentum, with arabica falling to two-month lows.

Production and Inventory Trends
The report suggests that coffee inventories are tightening, which typically supports prices. ICE-monitored inventories for arabica coffee have recently fallen to a one-and-a-half month low, while robusta coffee inventories have hit a three-week low. This tight inventory situation is somewhat balanced by recent positive rainfall in Brazil's major coffee-growing regions, reducing drought concerns.

Supply Concerns
Continued supply fears are evident as the Brazilian coffee export figures for February show a decline of 12% year-over-year. The government's crop forecasts have also been adjusted downward, indicating a concerning outlook for future coffee yields, a sentiment echoed by Brazil's coffee co-ops. However, the expectation of a global coffee surplus in the 2025/26 season puts bear pressure on coffee prices.

Regional Impact
The Brazilian real's strength has also acted as a double-edged sword, discouraging Brazilian coffee exports while supporting coffee prices in international markets. Furthermore, Vietnam is expecting increased robusta production, which could contribute to a larger global supply against the backdrop of Brazil's challenges. The long-term weather patterns, including an El Nino effect, pose additional risks to coffee crops in South and Central America, potentially affecting yields severely.

Investor Outlook
Overall, the mixed conditions present both opportunities and risks for coffee investors and producers. Those tracking the coffee market should remain vigilant about tariff impacts and global production forecasts, while also considering the ongoing weather challenges in major growing regions.

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