Citi: Improving coffee supply and slowing demand point to further declines in Arabica prices

Why is Citi bearish on coffee prices?

Citi forecasts Arabica coffee at 2.50 dollars per pound over the next three months, 12% below the spot price at the time of its report, and at 2.25 dollars per pound in 12 months, down 21%. The bank sees the potential for a significant price correction before year-end.
Improving supply is key: Brazilian exports have been exceptionally strong over the past three months, and Citi expects shipments in October to exceed 5 million bags, based on export certificate data. Vietnamese Robusta supply has also exceeded expectations, with the production forecast raised by 2 million bags.
Demand is cooling at the same time. Roasters are using more Robusta, adjusting blends and reducing inventory coverage; high retail prices are also beginning to curb consumption in price-sensitive markets. If exports remain strong and demand growth continues to slow, Citi expects destination inventories to rebound more visibly over the next few quarters.

The inventory recovery remains slower than expected. ICE-certified Arabica inventories and stocks in consuming markets are low, supporting premiums for coffee for near-term delivery. If inventories remain tight after supply improves, Citi believes this could mean actual consumption is more resilient than it assumes.
A strong El Niño is another upside risk. Citi believes the immediate risk is concentrated in Central America: if drought persists in Honduras during flowering and coffee cherry development, yields and bean size could be affected.
Vietnam’s current crop is in good condition, with no significant production losses yet, but historically rainfall from 1 to April following El Niño has averaged only 63% of normal levels. This could increase irrigation needs and affect production during flowering; Citi therefore regards it as a medium-term risk.

US packaged coffee sales were previously driven by price increases, but growth fell rapidly as those increases slowed: year-on-year growth declined from a peak of roughly 12%–13% between the third quarter of 2025 and the first quarter of 2026 to 1.1% in the third quarter of 2026, before turning into a decline of 2.2% in the fourth quarter through the time of the report.
Sales volumes have yet to recover as price increases have slowed. Packaged coffee volumes have fallen year on year every quarter since the first quarter of 2024, with the decline widening to 7.8% in the third quarter of 2026. In the fourth quarter through the time of the report, coffee pod volumes were still down 7.6% year on year, although average price growth had slowed from 4.4% in the third quarter to 0.9%.
Some demand is shifting within the category: instant coffee volumes rose 23.6% year on year in the third quarter of 2026 and 12.6% in the fourth quarter through the time of the report. Citi believes this is consistent with signs that consumers are seeking more economical options.

Citi believes lower coffee bean prices will help Keurig Dr Pepper’s US coffee business restore profits, but cheaper raw materials must pass through inventory and hedging before their effects gradually appear. The bank forecasts year-on-year profit growth of 5.3% for the segment in the second half of 2026, with a margin of 33.8%, up 2.3 percentage points year on year.
Weak demand and spending to offer consumers better value could absorb some of the cost savings. Citi believes sustained volume improvement is key to whether the profit recovery can last. By contrast, coffee beans account for only a mid-single-digit percentage of costs at coffee-focused foodservice companies, so lower prices are more likely to boost market sentiment than materially change earnings forecasts.