Coffee Prices Rally on Weak Dollar and Mixed Supply Outlook

Coffee futures markets are showing renewed momentum, with both arabica and robusta contracts gaining ground in recent trading. March arabica coffee (KCH26) has climbed by 5.90 points, or 1.68%, while its robusta counterpart (RMH26) has advanced 65 points, or 1.57%. According to barchart commodity analysis, this rally reflects a confluence of factors reshaping the global coffee market, with currency movements and supply disruptions taking center stage.

Dollar Weakness Fuels Commodity Rally

The primary catalyst lifting coffee prices has been the significant retreat in the US dollar index, which fell sharply by 0.6% to touch a new 4-month low. This greenback weakness has created a favorable environment for commodity prices broadly, including the coffee complex. When the dollar weakens against other currencies, commodities priced in dollars become more affordable for international buyers, typically supporting prices. This dynamic has proven particularly bullish for coffee, given existing supply tightness concerns.

Brazilian Production Under Pressure

Brazil, the world’s largest arabica coffee producer, is facing headwinds that could limit global supply growth. Recent data reveals significant challenges in the country’s coffee sector. Cecafe, Brazil’s coffee exporters council, reported that December green coffee exports contracted substantially, with total shipments falling 18.4% to 2.86 million bags. Within this, arabica exports declined 10% year-over-year to 2.6 million bags, while robusta shipments plummeted 61% year-over-year to just 222,147 bags.

Adding to supply concerns, weather conditions in Brazil’s key growing regions have deteriorated. Somar Meteorologia documented that Minas Gerais, Brazil’s largest arabica coffee-growing area, received only 33.9 mm of rainfall during the week ended January 16—just 53% of the historical average. This below-normal precipitation has raised questions about crop health and could constrain future harvests, providing additional support for coffee prices.

However, medium-term Brazilian production forecasts suggest ample supplies ahead. Conab, Brazil’s crop forecasting agency, raised its 2025 coffee production estimate by 2.4% to 56.54 million bags in early December, up from a September forecast of 55.20 million bags. Looking further ahead, the USDA Foreign Agriculture Service projected that Brazil’s 2025/26 output will total 63 million bags, though this represents a 3.1% year-over-year decline.

Vietnamese Supply Surge Weighs on Robusta

Vietnam, the world’s leading robusta coffee producer, is ramping up production significantly, creating downward pressure on robusta prices. According to Vietnam’s National Statistics Office, 2025 coffee exports jumped 17.5% year-over-year to 1.58 million metric tons. Looking at production capacity, Vietnam’s 2025/26 coffee output is projected to climb 6% year-over-year to 1.76 million metric tons, or 29.4 million bags—a 4-year high. The Vietnam Coffee and Cocoa Association (Vicofa) has indicated that output could run 10% higher than the prior crop year if weather conditions cooperate, suggesting Vietnam may continue expanding market share at the expense of other robusta suppliers.

Inventory Dynamics Signal Mixed Signals

ICE coffee inventories present a complicated picture for price forecasts. Arabica inventories fell to a 1.75-year low of 398,645 bags on November 20 but have since recovered to a 2.5-month high of 461,829 bags as of January 14. Similarly, robusta inventories dipped to a 1-year low of 4,012 lots on December 10 before rebounding to a 1.75-month high of 4,609 lots recently. This inventory recovery suggests that supply tightness may be easing, potentially capping upside for prices.

Global Market Outlook

International Coffee Organization (ICO) data released in November indicated that global coffee exports for the current marketing year (October-September) fell just 0.3% year-over-year to 138.658 million bags, suggesting relatively balanced conditions. However, the USDA Foreign Agriculture Service painted a more expansive picture in its December report, projecting that world coffee production in 2025/26 will increase 2.0% year-over-year to a record 178.848 million bags. This forecast includes a 4.7% decline in arabica production to 95.515 million bags offset by a 10.9% surge in robusta production to 83.333 million bags.

Critically, the FAS anticipates that 2025/26 ending stocks will fall 5.4% to 20.148 million bags from 21.307 million bags in the prior year. This modest inventory drawdown, combined with robust global production, suggests that coffee prices may face structural headwinds despite near-term currency-driven support. For investors tracking coffee prices, the fundamental outlook remains balanced between near-term bullish factors and medium-term supply abundance.