Weather Woes and Tight Stocks: Why Coffee Markets Are Rattled in Early 2026

Coffee futures are experiencing significant momentum as multiple supply concerns converge in the global market. March arabica contracts have climbed to their highest levels in 1.5 weeks, gaining +1.05 points (+0.30%), while March robusta futures surged +17 points (+0.44%), reflecting growing anxiety about crop stability across major producing regions.

Brazil’s Drought Alarm: A 17% Rain Deficit

The primary catalyst stems from Brazil’s arabica heartland. Somar Meteorologia’s latest report reveals that Minas Gerais—responsible for the bulk of Brazil’s arabica output—received only 11.1 mm of rainfall during the week ending December 26. This represents a sharp 17% shortfall from historical norms, intensifying concerns about flowering and fruit development during the critical season. Such precipitation deficits can cascade through supply chains, especially if dry conditions persist.

Indonesia’s Flooding Crisis Threatens Export Capacity

While Brazil faces dryness, Indonesia grapples with the opposite extreme. Extensive flooding across northern Sumatra has ravaged approximately one-third of the region’s arabica coffee farms in recent weeks. According to the Association of Indonesian Coffee Exporters and Industry leadership, these weather events could slash the country’s coffee exports by as much as 15% during the 2025-26 season. As the world’s third-largest robusta producer, Indonesia’s production disruptions carry outsized market implications.

Inventory Tightness Amplifies Price Pressure

Dwindling stockpiles add another layer of bullish support. ICE-monitored arabica inventories had plunged to a 1.75-year low of 398,645 bags by mid-November, though they recovered partially to 456,477 bags recently. Similarly, robusta inventory hit a 1-year trough of 4,012 lots in mid-December before bouncing to 4,278 lots. These stretched warehouse positions leave little buffer for supply disruptions.

US Tariff Shifts Create Buying Dynamics

American purchasing patterns underscore how trade policy intersects with commodity markets. During the August-October period when elevated tariffs on Brazilian imports were active, US coffee purchases plummeted 52% year-over-year to just 983,970 bags. Despite recent tariff reductions, US inventories remain constrained, suggesting subdued restocking demand even as prices climb.

Production Forecasts Paint a Mixed Picture

Brazil’s crop outlook presents conflicting signals. In December, Conab boosted its 2025 production estimate by 2.4% to 56.54 million bags—yet the USDA’s Foreign Agricultural Service projects a -3.1% decline for 2025/26 to 63 million bags, indicating expected crop softness ahead. Meanwhile, Vietnam’s output trajectory points upward: November coffee exports jumped 39% year-over-year to 88,000 MT, with January-November shipments up 14.8% to 1.398 MMT. Vicofa forecasts Vietnam’s 2025/26 production could reach 30.8 million bags (a 4-year peak), up 6.2% annually, potentially weighing on robusta valuations given Vietnam’s dominance as the world’s largest robusta supplier.

Global Supply Signals Complexity Ahead

The International Coffee Organization reported that global coffee exports for the current marketing year fell -0.3% year-over-year to 138.658 million bags, signaling tightness. However, the USDA projects world production will climb +2.0% to a record 178.848 million bags in 2025/26, even as arabica output declines -4.7% to 95.515 million bags while robusta surges +10.9% to 83.333 million bags. Global ending stocks are forecast to shrink -5.4% to 20.148 million bags from 21.307 million bags in 2024/25.

The coffee market currently sits at an inflection point—immediate supply worries from rain deficits and flooding are underpinning prices, yet longer-term production gains and rising Vietnamese exports suggest headwinds may emerge. Traders monitoring both weather patterns and inventory flows will need to weigh these competing forces.