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Coffee Prices Fluctuate Amid Supply Concerns and Weather Risks

Coffee sees price increases amidst fears of supply shortages due to adverse weather. Investors should consider potential impacts on major suppliers like Starbucks and Constellation Brands.

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AI Rating:   6

Coffee Price Trends
Recent reports indicate that coffee prices have experienced fluctuations, attributed to concerns of a diminished supply from Brazil and Vietnam, significant coffee producers. Specifically, the outlook for the Brazilian coffee crop in the 2025/26 season denotes a predicted decline of -13.6% y/y to 38.1 million bags due to dry weather, which impacts flowering and ultimately production levels. This situation fosters investor interest as decreasing supply usually leads to price increases.

Global Supply and Demand Dynamics
Vietnam's coffee exports have diminished considerably, with a reported drop of -15.3% y/y in the first quarter. Vietnam has always been a dominant player in the robusta coffee market, and these reduced exports contribute to bolstering prices. Concurrently, a significant factor influencing pricing trends is the mixed inventory levels: robusta coffee stocks have decreased, yet arabica coffee inventories have increased.

Impact of Tariffs
Companies such as Starbucks and Mondelēz International have expressed concern regarding the US’s potential 10% tariff on coffee imports, which could aggravate costs and diminish sales volumes. This macroeconomic aspect is crucial as it could drive consumer prices up, thereby reducing demand.

Long-term Production Outlook
Looking to the future, reports outline Brazil's robusta coffee crop expected to increase, contrasting the predicted drop in arabica coffee. The USDA has projected a global coffee production uptick in 2024/25; however, forecasts for Brazil indicate reduced coffee inventories which could create a tighter supply, especially if adverse weather persists. A surplus in global coffee exports has been noted as bearish for prices, showcasing a complex interplay between production and consumption rates.

For investors, the mixed signals in coffee prices due to supply issues and immediate demand pressures suggest a need for careful observation of retail giants and their operational responses to growing costs. Investors may want to assess their positions, especially with tariffs potentially altering market dynamics.

Stocks:  SBUX HSY MDLZ