December arabica coffee futures experienced a decline of -3.05 (-0.79%) on Tuesday, while November ICE robusta coffee futures closed down -59 (-1.33%). The coffee market witnessed an initial uptick before retreating from a 4-month peak for arabica, primarily due to the strengthening dollar, which prompted profit-taking and long liquidation.

Early trading saw coffee prices rise amid concerns over dry conditions in Brazil's coffee-growing regions, particularly as the crucial flowering period for coffee trees approaches. Somar Meteorologia reported a lack of rainfall in Minas Gerais, Brazil's primary arabica-producing area, for the week ending September 6.

Supporting coffee prices are the tightening ICE coffee inventories. Arabica stocks monitored by ICE hit a 16-month low of 685,945 bags on Tuesday. Similarly, ICE robusta coffee inventories reached a recent low of 6,552 lots on August 28, with only a slight increase to 6,638 lots reported recently.

Further bolstering prices was Conab's revised forecast for Brazil's 2025 coffee production. The crop forecasting agency reduced its arabica estimate by -4.9% to 35.2 million bags, down from the May projection of 37.0 million bags. The overall 2025 coffee production estimate for Brazil was also trimmed by -0.9% to 55.2 million bags.

Global coffee export data has been supportive of prices. The International Coffee Organization (ICO) reported a -1.6% year-over-year decrease in July coffee exports to 11.6 million bags, with cumulative Oct-Jul exports showing a slight -0.3% year-over-year decline at 115.615 million bags.

US coffee supply concerns are emerging due to tariff issues. American buyers are reportedly canceling new contracts for Brazilian coffee beans because of the 50% tariffs imposed on US imports from Brazil. This development could tighten US supplies, considering that approximately one-third of America's unroasted coffee is sourced from Brazil.

However, harvest pressures in Brazil are exerting bearish influence on coffee prices. Cooxupe, Brazil's largest coffee cooperative and exporter group, announced that the harvest among its members was 97% complete as of September 5. Separately, Safras & Mercado reported that Brazil's overall 2025/26 coffee harvest was 99% complete by August 20, ahead of last year's pace.

Brazilian export data has been mixed. The Trade Ministry reported a -20.4% year-over-year decline in July unroasted coffee exports to 161,000 MT. Cecafe, an exporter group, noted that Brazil's green coffee exports in July fell -28% year-over-year to 2.4 million bags, with arabica exports down -21% and robusta exports plummeting -49%.

Vietnam's coffee sector has faced challenges due to drought, with 2023/24 production decreasing by -20% year-over-year to 1.472 MMT, the smallest crop in four years. The Vietnam Coffee and Cocoa Association revised its 2024/25 production estimate downward to 26.5 million bags. However, recent data from the Vietnam National Statistics Office showed a 7.8% year-over-year increase in Jan-Aug 2025 coffee exports to 1.141 MMT.

Looking ahead, the USDA's Foreign Agriculture Service projects global coffee production in 2025/26 to rise by 2.5% year-over-year to a record 178.68 million bags. This forecast includes a slight increase in Brazil's production and a 6.9% rise in Vietnam's output. However, Volcafe anticipates a global 2025/26 arabica coffee deficit of -8.5 million bags, wider than the previous year's deficit and marking the fifth consecutive year of shortfalls.

As the coffee market navigates these complex supply and demand dynamics, traders and industry stakeholders will need to closely monitor weather patterns, export trends, and global economic factors that could influence future price movements.