May arabica coffee (KCK25) declined by -1.05 (-0.27%) on Thursday, while May robusta coffee (RMK25) rose +20 (+0.35%). Arabica prices hit a 1.5-week low, pressured by rain forecasts in Minas Gerais, Brazil’s top arabica region, easing dryness worries. Meanwhile, robusta recovered from early losses as ICE-monitored inventories fell to a 1.5-week low of 4,303 lots, signaling tight supplies.

A bearish factor was Marex Solutions’ forecast of a larger global coffee surplus, expected to widen to 1.2 million bags in 2025/26 from 200,000 bags in 2024/25. Also weighing on robusta was Vietnam’s February coffee exports, which rose 6.6% y/y to 169,000 MT, reaffirming its top-producer status.

On the bullish side, Brazil’s Minas Gerais region saw only 2% of its historical average rainfall, fueling supply concerns. A weakened U.S. dollar also supported coffee prices, with the dollar index (DXY00) hitting a 4.75-month low.

Long-term concerns stem from El Niño-induced droughts in South and Central America. Brazil is facing its driest spell since 1981, hurting coffee trees during flowering. Vietnam’s 2023/24 robusta crop dropped 20%, the smallest in four years, while 2024 coffee exports fell 17.1% y/y.

Brazil’s 2024 exports surged 28.8% to a record 50.5 million bags, though global exports fell 12.4% in December. Analysts predict a widening arabica deficit, signaling potential price volatility ahead.