Coffee Prices Plummet Amid Supply Concerns and Weather Challenges

Coffee futures faced a sharp decline as robust supplies from Brazil and Vietnam contribute to bearish sentiment. Demand concerns from key importers like Starbucks and Hershey further complicate the outlook. Professional investors should consider these trends when evaluating potential impacts on related stocks.

Date: 29-05-2025

AI Rating: 4

Market Overview: The report indicates a significant drop in coffee prices, with arabica and robusta coffee futures closing sharply lower, reflecting a bearish trend driven by various market forces. Over the past four weeks, a forecasted increase in coffee production in Brazil and Vietnam has put additional pressure on prices.

Brazil, being the largest producer of arabica coffee, is set to see its production rise by 0.5% year-over-year to 65 million bags for the 2025/26 season. Similarly, robusta production in Vietnam is expected to increase significantly. Such supply increases typically lead to lower prices, highlighting why both arabica and robusta futures have hit recent lows.

The pressure on prices is compounded by rising ICE coffee inventories, which have reached highs not seen in months. This indicates an oversupply in the market, dampening bullish sentiment. Conversely, some support for prices is drawn from reports of poor weather conditions in Brazil, which could hinder crop yields, but the overall sentiment remains pessimistic due to supply forecasts.

Demand Concerns: The report highlights bearish sentiments among major coffee buyers, including Starbucks and Hershey. They have cited how tariffs on imports could raise prices and pressure sales volumes. Lower demand from these notable players could further suppress coffee prices, creating a challenging environment for producers.

With coffee exports from Brazil and Vietnam also diminishing—Brazil's April green coffee exports fell by 28% year-over-year—the dynamics of supply and demand remain at odds. While smaller exports may contribute positively to coffee prices, the prevailing increase in inventory levels overwhelms such effects.

Uncertainty Ahead: Future pricing could hinge on weather conditions and supply chain dynamics from key producers. The report mentions that the USDA has projected an increase in global coffee production, which could compound the downward pressure on prices unless demand picks up. This volatility makes it crucial for investors to stay alert to changes in weather patterns and inventory levels, which could drastically affect the profit margins of companies reliant on coffee as a commodity.

Stocks: SBUX HSY MDLZ