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Coffee Prices Drop Amid Record Production Forecasts

Coffee prices fell significantly on forecasts of higher production, with Brazil and Vietnam boosting output. Concerns over U.S. tariffs may further pressure sales across major importers like Starbucks and Hershey.

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AI Rating:   5

Overall Market Trends
Recent reports indicate a bearish outlook for coffee prices driven by anticipated increases in coffee production from key exporters, Brazil and Vietnam. The USDA's projections point toward record yields, with Brazil's production expected to reach 65 million bags, up 0.5% year over year, and Vietnam's output anticipated to rise by 6.9% to 31 million bags for the 2025/26 marketing year.

Impact on Prices
The growing inventory levels, marking an 8-month high for robusta and a 3-1/4 month high for arabica, further add to the downward pricing pressure. The robusta coffee inventory reaching 5,211 lots and the arabica inventory at 866,951 bags indicate ample supply. Such inventory levels suggest that even with demand concerns emerging from key buyers like Starbucks and Hershey, current supply dynamics may keep prices in check.

Demand Concerns and Economic Factors
Significant global commodity importers have voiced concerns about a potential 10% tariff increase on imports, which could lead to reduced sales volumes. The tariffs may dampen demand further, heightening the pressure on coffee prices.

Possible Upsides
Despite the bearish factors, forecasts of reduced production due to adverse weather conditions in Brazil could potentially limit price declines. The USDA's report hints at the possibility that Brazil's inventory is expected to fall by 26% year-over-year by the end of the 2024/25 season, which might create eventual price support as supply tightens. Additionally, the decline in robusta production due to drought conditions in Vietnam could provide a counterbalance, emphasizing the complexity of supply dynamics across different coffee markets.

Conclusion
As an investor in the commodities sector, the increasing production forecasts highlight a dramatically shifting landscape for coffee pricing. Immediate-term price reductions are likely, but underlying factors such as weather-related impacts on regional crops and tariff implications could create volatility beneficial for strategic trading positions.

Stocks:  SBUX HSY MDLZ