More expensive coffee: climate challenges affect 25/26 harvest

The Brazilian coffee market continues to face significant challenges due to adverse weather conditions and economic fluctuations. After a prolonged dry period until September 2024, rains have returned to producing regions, benefiting flower set and bean filling. In addition, after heavy rains in early February, the weather has once again become dry and hot in Brazil, raising uncertainty about its adverse effects in 2025/26.

While climate impacts affect production, data from the INPC (National Consumer Price Index) show that "coffee" has started to weigh more heavily on Brazilians' pockets. Despite the adjustment of the minimum wage, the share of coffee in consumer income has increased, which could negatively impact consumption throughout 2025, if prices remain at higher levels.

Production and supply: Arabica in decline, Conilon in recovery

Hedgepoint Global Markets projects a 4,9% drop in Arabica production for 2025/26, totaling 41,1 million bags. This decline reflects both adverse weather conditions and the smaller planted area.

Conversely, conilon may show a recovery, with an estimated 23 million bags, an increase of 14,3% compared to the previous cycle, driven by more favorable weather conditions and investments in area expansion. However, low stocks and an expected increase in the use of the variety in the domestic blend may limit exports in the coming months.

Sales of the 2024/25 harvest remain above average, with a large part of the production already sold, reducing grain availability in the off-season. Brazil has been able to meet global demand so far, but shipments may be limited in the coming months, especially for conilon, whose export volumes in January already reflect this restriction.

Uncertainties in Asia and Central America

On the international scene, Indonesia is expected to show a recovery in the 2024/25 harvest, while Vietnam is still facing limited supply, with a possible improvement expected in the 2025/26 harvest. With prices rising on the global market and in Brazil, producers from various origins are holding back their sales, waiting for even higher prices.

On the other hand, it is worth remembering that we are approaching not only the 25/26 harvest in Brazil, but also in Indonesia, which could bring some relief in the medium term.

In Central America, Honduras and Mexico are expected to record smaller harvests in 2024/25, while Colombia could offset some of the decline, with an estimated production of 12,5 million bags.

In Europe, the world’s largest coffee consumer, there have been no significant signs of a decline in consumption so far. However, this scenario could change due to high prices and low stocks. Although stocks in the bloc recovered in late 2024, driven by large imports from the bloc, partly due to EUDR regulations, they remain below average.

Global balance and future perspectives

The coffee market is pointing to a fourth consecutive year of deficit in 2024/25, given that supply is expected to be lower than demand. In 25/26, the expected drop in Brazilian production could limit an eventual recovery in global supply, even in the face of a possible drop in demand, although it is still too early to make more precise projections for other countries.

The main factors to be monitored in the coming months include weather conditions in Brazil, price differentials in the main origins, the marketing of the Brazilian harvest and high prices and their effect on global demand. With the market highly volatile and operating costs rising, the sector will need to remain alert to short, medium and long-term challenges.