Coffee Prices Decline Amid Tariff and Weather Concerns

Coffee markets are reacting to potential tariffs and adverse weather impacting supply. Investors should closely monitor companies like Starbucks and Hershey as they navigate these changes.

Date: 02-05-2025

AI Rating: 5

Coffee Market Overview: The recent decline in coffee prices, driven by fears of higher tariffs, is affecting major players in the industry. Both arabica and robusta coffee are experiencing significant price drops, causing concern among investors. The reports indicate that US import tariffs could lead to increased coffee prices while also adversely affecting sales volumes for major consumers such as Starbucks and Hershey.

Weather Impact: The weather situation in Brazil, a key player in coffee production, is another critical factor. Abundant rain has raised soil moisture but may fail to fully compensate for prior droughts. The forecast predicts a substantial reduction in Brazil's arabica output, expected to fall by -13.6% year-over-year, which could further support coffee prices despite the tariff issues.

Statistics and Predictions: Brazil is projected to face a coffee crop of 38.1 million bags for arabica in the 2025/26 season, significantly impacted by earlier dry conditions. At the same time, robusta coffee crop predictions indicate an increase due to the natural cycles of production. However, falling export volumes and anticipated global deficits further complicate the market landscape.

The analysis of the current coffee supply situation highlights that while arabica inventories are rising, robusta inventories are declining. A mixed signal appears as inventories are at a 4-month low for robusta as opposed to a higher level for arabica. This may create volatility in pricing, as supply and demand dynamics play out over the coming months.

Investment Considerations: Investors should be wary of potential disruptions from tariffs and fluctuating supply levels, along with overall increased production costs that could impact profit margins for companies involved in coffee supply chains. Given the mixed signals, companies like Starbucks and Hershey, both affected by coffee price movements, should remain on the radar for investors as they navigate this challenging landscape.

Stocks: SBUX HSY MDLZ